RBC Capital Markets upgrades CMC Markets to 'outperform'
Analysts at RBC Capital Markets upgraded their rating on shares of CMC Markets from 'speculative risk' to 'outperform' on Thursday following the group's first-half pre-close update.
CMC Markets raised its forecast for full-year operating profits on the back of the "strong" net trading revenues observed during the first half of its financial year 2020 thanks to higher income from its technology business and higher sales from its white-label stockbroking business.
For the six months ended 30 September, the firm said revenues from its stockbroking business were expected to reach roughly £14.0m, up from £5.5m one year ago, driven by increased sales from the various white-label partnerships it had in Australia, of which ANZ Bank was the biggest.
RBC Capital Markets said that following a "challenging" 2019 trading year, CMC Markets' first-half update suggested a "strong rebound in profit", leading its recommendation for the firm's shares.
The Canadian broker also believed regulatory risks to the company's earnings trajectory were "more than reflected in the share price" and pointed to some "substantial" upside potential.
RBC, which bumped its price target on CMC up to 125p from 120p, highlighted an "encouraging" 150% increase in stockbroking revenue for CMC Markets, with white label partnerships in Australia said to be the key driver.
Lastly, the analysts pointed out that 2020 was the first full-year where CMC's ANZ transaction would positively contribute for the entire year.
"Following upgraded guidance, we have increased our 2020 stockbroking income in our model by 12%," said RBC.