CMC Markets contemplating split into two separate companies: Sky News

Sky News has reported over the weekend that leading UK online trading firm CMC Markets (LON:CMCX) is working with financial advisors on a possible breakup of CMC into two separate, publicly traded companies.

Under the plan being looked at by the CMC board, one entity – likely to retain the CMC name – would keep CMC’s traditional leveraged and spread trading business, while the “new” spun-off company would take with it CMC’s other consumer investment products, such as investment management and direct share trading.

The purpose of the breakup, being looked at by the CMC board, is to unlock value for shareholders. CMC controlling shareholder Lord Peter Cruddas, who owns more than 60% of CMC, has long opined that his company is undervalued. A quick look at the numbers bears that out, with CMC trading at a discount to the relative valuations of its main rivals in the UK CFD trading business, IG Group (LON:IGG) and Plus500 (LON:PLUS). Both IG and Plus500 trade at a significant premium to CMC, based on enterprise value to revenues.

CMC Markets shares traded down by 27% in early September after the company disclosed that its revenues for FY2022 were going to be less than expected. The contemplated breakup would aim to separate the businesses which are subject to high levels of volatility – namely the leveraged trading business – from the “steadier businesses”, which have been a key part of CMC’s focus in recent years, especially, outside the UK, such as CMC’s Australia and New Zealand stockbroking business.

Sky News claims that while the plan being led by CMC Chairman James Richards is still at an early stage, the company could announce “within days” that it has begun work on the potential split.

CMC Shares are down this year by 35%, while the stock market is well up (e.g. FTSE 100 is +12% YTD). We will continue to follow this story as it develops.

CMC Markets share price, 2021 year to date. Source: Google Finance.