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The Global markets surprised everyone with a double-digit rally over the last few weeks. The rally was fuelled by the optimism over the reopening of the economies coupled with stimulus packages introduced by the governments. However, the gains were not supported by the fundamentals as bleak economic readings created apprehensions and adversely affected the risk appetite of investors. Subsequently, it is evident when FTSE 100 slipped around 2.5 per cent (before the market close on 11th June 2020).
The following factors have been playing a critical role in impacting the market sentiments today:
- The Federal reserved forecasted that the US economy would contract by 6.5 per cent in 2020, while unemployment would remain at 9.3 per cent by the end of 2020.
- Asian shares dropped post a downbeat economic outlook as recovery would require additional stimulus
- Risk appetite was further dampened by a sudden rise in US COVID-19 cases, depicting a likelihood for a second wave of the pandemic.
Considering the prevailing market conditions, we are covering two financial services stocks - CMC Markets PLC (LON:CMCX) and Funding Circle Holdings PLC (LON:FCH). Despite the retreating market forces, both the stocks were surging and were up by 23.32 per cent (CMCX) and 0.38 per cent (FCH), respectively. The CMC Markets PLC is grabbing the market attention post releasing its full-year 2020 results. Let’s skim through the financial and operational position of the Companies to understand the stock movement in a comprehensive manger.
CMC Markets PLC (LON:CMCX) – Marked Strong Start to FY21 with Steep Increase in Income
CMC Markets PLC is a FTSE All-Share listed Company, which provides Online Trading services to both institutional and retail clients. Its stock trading platforms are supported by pricing, charting, and automated execution, which supports the trading of equities, indices, commodities, and foreign exchange. The clients can trade the markets through financial spread bets (UK and Ireland only), contracts for difference (CFDs) and binaries. It also provides services in the Australian market.
(Source: Annual Report, Company Website)
Recent Significant Developments of 2020
11th June 2020: The Company announced the final dividend of 12.18 pence per share and a total dividend of 15.03 pence per share.
3rd April 2020: In the pre-closing trading update, the Group affirmed that the full-year performance was in line with previously provided guidance and unveiled a confident outlook.
Financial Highlights – Profits and Dividend Jumped as COVID-19 Boosted Online Retail Financial Services
On 11th June 2020, the Group provided the final results for the year ended 31 March 2020, with net operating income surged to GBP 252 million and PBT (profit before tax) to £98.7 million (FY19: £130.8 million and £6.3 million respectively). For the year ended 31st March 2020, the total revenue increased to GBP 298.1 million from GBP 166.0 million. Some Additional Highlights are:
- Stockbroking net trading revenue growth of 106 per cent to GBP 31.8 million, driven by the first full year of the ANZ Bank partnership.
- Led by improved retention of CFD (contracts for difference) gross client income, CFD revenue per active client increased by 81 per cent to GBP 3,750. Whilst CFD active clients surged by 3,894 (up 7 per cent), reflecting the continuing attractiveness of the platform.
- The Group has not furloughed or reduced any of its permanent workforce in response to the COVID-19 pandemic, nor it has requested any government aid in any location.
- Final dividend per share for the year of 12.18 pence resulting in a total dividend per share increased by 640 per cent to 15.03 pence.
- The Group has a robust balance sheet and net available liquidity position.
(Source: Final Results, Company Website)
Share Price Performance
(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 11th, 2020, before the market close
CMCX’s shares were quoting at GBX 245.70 on 11th June 2020 (before the market close at 2:36 PM GMT+1). Stock's 52 weeks High is GBX 247.50 and Low is GBX 80.60. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 575.20 million.
Business Outlook
At the start of the new financial year, CFD gross client income has been around double as compared with the same period in the previous financial year, while its client income retention stays robust and stockbroking performance continuing to benefit significantly from increased market activity. CMCX is also investing in the technology to create a multi-asset class solution for the Institutional (“B2B”) client base, built on the proprietary Next Generation technology. It is expected that the Group effective tax rate will increase to above the UK corporate tax rate in FY21. Hence, the Company has seen decent momentum, with a positive outlook and stable dividend policy.
Funding Circle Holdings PLC (LON:FCH) – Received Accreditation for CBILS, while its CFO Departed
Funding Circle Holdings PLC is a FTSE All-Share listed Company, which provides an online lending platform that connects banks, retail investors, government backed entities, insurance and asset management companies to the medium and small scale businesses in the UK, US, Germany and Netherlands. As of FY19, the Company has around GBP 3.7 billion of loans under management and GBP 2.4 billion of Originations. The Company bifurcates its revenue into four streams, namely Transaction revenue, Servicing Revenue, Net Investment revenue and Other revenue.
The Company is expected to release its half-yearly 2020 results on 10th September 2020.
(Source: Presentation, Company Website)
Synopsis of Recent Major Regulatory Updates
20th May 2020: The Company confirmed in its annual general meeting that the Chief Financial Officer, Sean Glithero has stepped down from his position, which is taken by Oliver White from June onwards.
17th April 2020: The Company confirmed accreditation to join Coronavirus Business Interruption Loans Scheme (CBILS), which will bolster its position for SME lending.
COVID-19 Update – Reflecting Decent Financial Base During Uncertain Times
On 17th April 2020, the Company delivers an update, following accreditation to join the BBB (British Business Bank's) CBILS (Coronavirus Business Interruption Loans Scheme) and an update in response to Coronavirus. Additional Highlights are stated below:
- Funding Circle has been accredited to join the BBB CBILS to distribute loans with an 80 per cent Government guarantee to UK small businesses.
- The Group originated more than GBP 6.2 billion of loans to over 57 thousand businesses.
- The program provides small businesses with forgivable loans up to USD 10 million to cover payroll costs, rent, mortgage interest, or utilities.
- The business has originated over USD 3 billion to 16 thousand businesses in the United States.
- The Group has a decent financial base and balance sheet, with cash of GBP 164.5 million as at 31 December 2019.
- However, the second half of March and April to-date wedged by COVID-19. The Group had withdrawn its financial guidance for 2020.
Financial Highlights (FY19) – Delivered Growth in Revenue and Loans Under Management
On 3rd April 2020, the Group published its Annual Report, with revenue growth of 18 per cent to GBP 167.4 million and Loans under management grew 19 per cent to reach a record GBP 3,731 million. Other highlights are:
- The basic loss per share for 2019 increased to 24.4 pence as compared with the loss of 18.2 pence in 2018.
- In FY19, the free cash outflow stood at £49.4 million (2018 outflow: £40.9 million).
Share Price Performance
(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 11th, 2020, before the market close
FCH’s shares were quoting at GBX 83.0373 on 11th June 2020 (before the market close at 2:40 PM GMT+1). Stock's 52 weeks High is GBX 265.00 and Low is GBX 21.95. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 277.98 million.
Business Outlook
The company is targeting that the Group’s adjusted EBITDA will be break-even in the second half of 2020. However, the Company continue to assess the possible impact of Coronavirus on investors and borrowers. The COVID-19 outbreak has not much-affected trading to date, but the Group is monitoring the situation closely and prudent to withdraw financial guidance for 2020 until the outlook becomes more apparent.
