Businessman checking stock market online

As an operator of a trading platform, CMC Markets PLC (LON:CMCX) does not give investment advice to its customers.

Founder and chief executive Peter Cruddas, however, has no hesitation in offering advice to investors at large about his company’s own shares.

“I don’t understand why anyone would not want to own the stock,” he declares.

The share price has doubled this year but after the company whacked up the full-year dividend from 2.00p the year before to 15p in the year to March 31, 2020, the shares are still yielding close to 4.6%.

That eye-catching share price appreciation has come during a golden period for the group, and while it is true that like all operators in the spread betting and contracts for difference (CFD) arena it has done very well out of the fast-changing markets seen during the coronavirus pandemic, even before that period of intense volatility it had announced four upgrades to profits guidance in just nine months.

Profit before tax in the financial year just ended soared 1,459% to £98.7mln from £6.3mln the year before on net operating income that was up 93% to £252.0mln from £130.8mln the previous year. COVID volatility was a factor in around six weeks of fiscal 2020 and will have more of an effect in the current fiscal year.

“We are a volatility hedge,” Cruddas ventured. “When times are bad, we perform well and when times are normal, we perform well.”

“Financial services is a good industry to be in because when governments are doing extreme things they need the financial markets to be open,” Cruddas continued.

A diversified business

The company operates in a crowded field but has a different business model to its peers.

Yes, it has the spread betting/CFDs trading platform, which is its bread & butter but it also has a stockbroking business in Australia – the second largest in the country – plus a business-to-business (B2B) white-label technology offering, through which it can leverage the millions it has invested in its trading technology by offering the platform to partners.

CMC has about 250 partnerships through its B2B business and is looking to add more. Just under 30% of its business currently comes from partnerships and it is looking to raise this to around 50%.

“Every day we gather two-and-a-half billion price ticks of data a day but there’s no point in gathering data if you can’t analyse it,” Cruddas told Proactive.

“Our strengths are in our front-end and our middle-end, where we give a really good user experience, and also what we’ve seen is reliability is important – we had a 99.95% uptime during the COVID period when there was extreme volatility – but also our pricing, our execution and our internal risk management tools mean that we have scale,” he added.

Since 2013, the company has been operating something called Project Tuna – the tuna being the most valuable fish in the sea, according to Cruddas (who is probably more of a golfer than a fisherman).

Project Tuna is based on the old 80/20 rule; 80% of CMC’s income comes from 20% of its client base and it has focused intently on attracting and keeping these high-value clients.

“We’re not a churn and burn business,” Cruddas maintains, possibly in an oblique reference to the not always pristine reputation of the spread betting market.

The European Securities Market Authority (ESMA) tightened up regulations in August 2018, which led to a reduction in client trading activity but in general CMC welcomed the regulator’s intervention.

The new regulations were largely designed to protect the spread betting newbies, innocents and novices and Cruddas is adamant that thanks to Project Tuna, CMC has not been focused on those sorts of clients anyway.

“We have definitely benefited from that change,” Cruddas believes. “We thought it was long overdue.”

Sticking around 

The CMC chief executive revealed that the average CMC client stays with the company for three years, while the higher-value clients tend to stay for four years.

He’s not quite sure where they disappear to when they do go although he does not believe they are sloping off to CMC’s competitors.

“Sometimes they stop trading, sometimes they move to different countries, sometimes they are buying houses, getting married/getting divorced – all sorts of reasons. We do see a lot of clients coming back … a year later. We’re not losing clients to competitors, we’re losing them for other reasons.”

As for Cruddas himself, he cheerfully admits to being 67 in September but echoing Mrs Thatcher’s famous quote, he plans to go on and on.

“I’m still energised,” he maintained. “We have a massive investment programme and lots of opportunities.

“I’m never gonna retire and you can quote me on that.”

(I just did).