Regulatory Pressure Will Challenge Trading Though DeFi May Aid Recovery

Key Takeaways

• Increasing regulatory pressures and competition from low-cost platforms threaten revenues, margins, and necessitate ongoing investment in technology to maintain market share.
  
• Shifting client preferences and industry commoditization risk eroding the core business, while reputational challenges and rising operational costs hinder long-term growth.
  
• Expansion into DeFi, product innovation, and global partnerships position CMC Markets for sustainable revenue growth, increased earnings stability, and resilience against industry shifts.

Catalysts

Provides a platform for investing, trading, and brokerage in the United Kingdom, Australia, and internationally.

• Regulatory tightening and elevated scrutiny around leveraged trading and derivative products remain a looming threat, which could significantly restrict CMC Markets' ability to generate trading revenues from retail clients and increase compliance costs, ultimately impairing both top-line growth and net margins.
  
• Secular shifts away from active retail trading towards passive investment vehicles and alternative assets like cryptocurrencies or private markets are likely to erode the core client base, placing downward pressure on transaction volumes and long-term revenue growth.
  
• The proliferation of low-cost and zero-commission platforms globally will compress fees and gross profitability, leading to structurally lower net margins and forcing CMC to continuously reinvest in technology just to maintain market share.
  
• Structural changes in global banking, including debanking trends and tightened cross-border payment regulations, could severely limit CMC's expansion in emerging markets, curtailing future international revenue streams even as operational costs continue to rise due to regulatory complexity.
  
• Persistent industry-wide commoditization and escalating cybersecurity costs will further constrain earnings power, while increased reputational risk from the sector's checkered history can hamper client acquisition and long-term retention, ultimately dampening future earnings potential.

CMC Markets Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on CMC Markets compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming CMC Markets's revenue will grow by 2.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 18.4% today to 17.6% in 3 years time.
• The bearish analysts expect earnings to reach £63.7 million (and earnings per share of £0.23) by about July 2028, up from £62.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, up from 10.7x today. This future PE is lower than the current PE for the GB Capital Markets industry at 13.0x.
• Analysts expect the number of shares outstanding to decline by 1.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.17%, as per the Simply Wall St company report.

CMC Markets Future Earnings Per Share Growth

Risks

• CMC Markets is successfully expanding its business model with a third vertical focused on DeFi and Web 3.0, leveraging partnerships like StrikeX and launching innovations such as tokenized assets and a multi-asset wallet, which could drive long-term revenue growth and open significant new addressable markets.
  
• Robust growth in international and crypto trading, especially in Australia where international trading now accounts for 37% of investing net revenue and showed double-digit year-on-year growth, indicates strong client acquisition momentum that could continue to support earnings and topline revenue growth.
  
• The B2B Platform Technology as a Service division, including the CMC Connect brand, has secured partnerships with major fintechs and banks (e.g., Revolut, ASB), building a healthy and expanding pipeline across multiple regions, which can provide recurring, higher-margin revenues and improve future earnings stability.
  
• Investment in proprietary technology and scalable infrastructure, as evidenced by operating expense discipline and the integration of new features (such as 24/7 trading, fractional shares, and multi-asset offerings), positions CMC Markets to capture ongoing secular trends in retail trading and digital finance, supporting sustainable improvements in net margins.
  
• The company's strong balance sheet, disciplined capital allocation (including consistent dividends and share buybacks), and a high-caliber leadership team with deep sector expertise provide financial resilience and the capability to continue making strategic investments, which can underpin long-term shareholder returns and support valuation growth.

Valuation

• The assumed bearish price target for CMC Markets is £2.22, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of CMC Markets's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £3.8, and the most bearish reporting a price target of just £2.22.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £361.8 million, earnings will come to £63.7 million, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of £2.45, the bearish analyst price target of £2.22 is 10.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.