CMC Markets plc (LON:CMCX) was the topic of conversation when DirectorsTalk interviewed Gervais Williams, Co-Fund Manager of Premier Miton UK Multi Cap Income Fund.
DirectorsTalk asked: CMC Markets increased its full-year profit before tax by 20% and upgraded its expectations as its institutional and business-to-business operations gained momentum. How has the investment case evolved as the business becomes more diversified?
Gervais noted: When it first issued, this company was perceived very much as a trader; CFD trading for customers, online opportunities to trade things. During the COVID period, it did very well but people have always, in our view, under-recognised the quality of its technology. It’s built an API connection for banks and others to trade with it and that’s allowed it to basically offer these same kind of services to their customers.
Now, they’ve already got a very strong market position in the Asian markets, particularly in Australia, ANZ Bank and they’ve done the deal with Westpac as well. Most particularly, they’ve got a series of new deals coming through, it’s still to come. They did do a Revolut deal already, which just shows the quality of their connection. The ability of Revolut to connect with them has meant that people are now getting a recognition of the value of its foundations.
As they bring new customers on, that will bring not just more flows, but a much higher quality of earnings. It won’t be just dependent on whether it’s COVID or not COVID in terms of trading, you’ve got a much wider universe of customers. It’s that feature which has led, in part with the recent customer acquisitions, to two very substantial upgrades already this year. Its share price, of course, appreciated but even now, we would argue it’s still undervalued.
It’s growing its dividend enormously this year, along with its earnings and it’s that combination of good and growing income, which we think is kind of useful in a market where the prospects are uncertain. It can be fine, it can be less fine. If things turn out badly, these kinds of companies won’t just survive but in many cases, some of them will actually thrive. Some of them, the upgrades will actually exceed that of many of the international companies and it’s that ability for companies not just to survive but actually surprise on the upside.
