CMC Markets Plc

CMC Markets Plc (LON: CMCX) is a financial services Company based out of the UK, providing mobile trading and online trading servicing for institutional and retail clients.

The Company will release a pre-closing update on 8 October 2020.

Investment Highlights - CMC Markets Plc – Expensive – GBX 335.00

• Despite the strong performance in the month of July and August, the Company’s variable operating costs have increased due to higher client onboarding costs and acquisition of new clients.
• As per valuation metrics, EV/EBITDA Price/Cash Flow and Price/Earnings multiples of the CMC Markets Plc are currently higher as compared to the corresponding multiples of the Investment Banking & Investment Services industry, reflecting overstretched valuations.
• The Company has a Debt/Equity ratio of 0.07% in FY2020, which is lower than the industry median but is continuously increasing on year-on-year basis from 2016.

Key Risks

• Any change in government policy or regulation could impact the overall business of the company.
• The company’s operations are impacted negatively due to uncertain political and economic climate for short to medium term.

Update on Trading Performance (released on 3 September 2020)

• The Company has shown a strong trading performance for the period from 1 July 2020 to 31 August 2020, with net operating income run rate slightly below Q1 2021, while client income remained higher as compared to the same period for last year.
• The client income retention for the period remained strong and was ahead of guidance of above 80%, with a strong performance from stockbroking business.
• Driven by higher clients trading and the addition of new clients to the platform, the Company experienced higher revenue performance in for the period.

One Year Share Price Chart

Daily Chart as of 4 September 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Technical Performance

From the technical standpoint, 14-day RSI is currently in an overbought zone, which means the stock price could decline in the short term.

Valuation Methodology: Price/Book Value (NTM) (Illustrative)

Conclusion

The Company has shown robust performance in the month of July and August and experienced higher revenues based on higher clients trading and the addition of new clients to the platform. The Company showed strong performance from stockbroking business, and client income retention also remained strong.

The Company witnessed an increase in variable costs for the period, which may impact the liquidity position as the market is still in recovery mode. Despite the higher costs, the CMCX continue to make an investment in technology to retain and attract clients for future growth.

The Company expects strong underlying performance in the financial year 2021 along with business diversity. The Company also believe net operating income for FY2021 will exceed the upper end of market guidance. Presently, the Company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of GBX 96.60 and GBX 375.50, respectively.

Based on the factors as highlighted above, we believe the stock of CMC Markets Plc is “Expensive” at the closing price of GBX 335.00 (as on 4 September 2020), with support from few catalysts needs to be evaluated at a later stage.

Georgia Capital Plc

United Kingdom-based Georgia Capital PLC (LON: CGEO) is a holding company. The Company is focused on investing in developing businesses in Georgia.

Investment Highlights – Avoid at GBX 383.50

• The Board does not intend to declare a dividend. Also, the company’s gross margin has remained stagnant or declined in H1 FY20.
• In the last six months, CGEO shares have delivered a negative price return of 45.99% and significantly underperformed the benchmark index (FTSE All-Share).
• The Company is facing some principal risks and uncertainties, which could impact the overall business of the Company. Presently, the international market is facing the biggest slowdown in productivity.
• Total portfolio and NAV per share were down in H1 FY20, due to the negative impact of COVID-19 and 6.5% depreciation of the Georgian lari against the dollar.

Key Risks

• The Georgian economy may be affected by adverse developments in the global economy arising from the outbreak of COVID-19.
• Also, the Georgian economy and the business may be adversely affected by the regional tensions.
• Some other risks - currency fluctuations with depreciation of the Georgian Lari, and macroeconomic risk; regulatory risk across a wide range of industries; investment risk and liquidity risk; regional instability; portfolio company strategic and execution risks.

Recent News

On 2 September 2020, the Company announced the admission of 679,992 additional ordinary shares at 1 pence each fully paid in CGEO. This is the premium listing segment of the Official List.

Financial Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 20 August 2020)

(Source: Company Website)

• Since April 2020 low, the Company has rebound in revenues across all portfolio companies, representing growth in aggregated revenue of 11% year-on-year in June 2020.
• The decline in NAV per share was driven by the negative impact of COVID-19 on listed asset prices and the valuation of private assets. The NAV per share was also impacted by a 6.5% depreciation of the Georgian lari against the dollar, resulting a 2.4% decline on NAV per share.
• The Company will not be paying a dividend due to an unprecedented crisis created by COVID-19.
• On 30 June 2020, the aggregated cash balances of portfolio companies stood at GEL 282 million (31 December 2019: GEL 183 million).

One Year Share Price Chart

1-Year Chart as of 4 September 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Technical Analysis

From the technical standpoint, 14-day RSI is currently close to the overbought zone, which means there is a likelihood for a short-term correction in the stock price.

Conclusion

In 2020, the International Monetary Fund (IMF) expects Georgia's GDP growth will contract by 4%. In the current period, the Company also increased its net debt position. During the first half of 2020, it has delivered decent financial performance. The Company is making acquisitions and signing a Sales and Purchase Agreement which would assist in the business growth prospects. Being a financial services company, Georgia Capital Plc needs to invest heavily in developing businesses and, any failure to do so will impact the brand royalty and may affect the company’s financial performance. However, the Company believes that all of the portfolio companies other than hospitality business, are positioned well to stay resilient.

Based on the headwinds faced by the Group, we have given an “Avoid” recommendation on Georgia Capital at the closing market price of GBX 383.50 (as on 4 September 2020), and we will watch out at the turnaround or improvement initiatives to be taken in the near term.

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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