Note: I currently hold shares in CMCX and this article is part one of two.
Investors hate CMC Markets right now, marking the share price down by over 75% between April 2021 and today. And who can blame them? Current year EPS is forecast to be down three quarters for its 2021 peak, a stark contrast to competitor IG Group which expect to report record results.
While investors set the share price, responsibility for the financial performance falls directly at the door of founder, CEO and 62% shareholder Peter Cruddas, who purported employees claim exercises absolute power over decision making at the firm. And like CMC’s stock, he’s difficult to love – to quote from an appeal court finding over the cash-for-access scandal that led to his resignation as Conservative Party Treasurer in 2012:
On a proper analysis of the transcript and recording the Claimant [Cruddas] was effectively saying that if the journalists donated large sums they would have the opportunity to influence Government policy, and gain unfair commercial advantage through confidential meetings with the Prime Minister and other senior ministers. This was unacceptable, inappropriate and wrong.
Politics
He is also closely associated with disgraced former prime minister Boris Johnson, who in 2020 nominated him for a life peerage against the unanimous advice of the House of Lords Appointments Commission. Although his estimated £3m of direct donations to the party, including £500,000 three days after being admitted to the Lords might be considered ample justification for Boris Johnson’s nomination, Cruddas has continued the association. In 2022 he organised a petition to keep Johnson in power after he lied to parliament, and then set up the Conservative Democratic Organisation, which aims to give grassroots members (who continue to support Johnson) more control.
Even for those on his side of the various political arguments would surely acknowledge Cruddas’ wide-ranging political involvement is a distraction from his day job. The latest news is that he has been identified as a possible buyer for the Telegraph newspaper group.
Maverick
But back to his performance and conduct as CEO of CMC Markets. Here he has cultivated an image in the city of a maverick, which may sit badly with some investors, even in the good times.
For example, in a November 2020 results presentation he made what I noted at the time was an “Off-colour joke about managing figures”, which I think related to the numbers rather than a reference to past behaviour at the Presidents Club. This followed on from a joke about sacking the CFO in June.
The last thing any investor wants is any inference that the CFO might not be able to stand up to the CEO, or that the results might have been manipulated in some way, especially for a financial stock. And, at the risk of getting too technical, especially when many were still questioning whether their then-new hedging strategy could consistently deliver the step change in client income retention seen since 2020H1. Incidentally, the CFO handed in their resignation last month.
More recently, in a June 2022 full-year investor presentation, Cruddas admitted not knowing who potential customers currently trade with, and to another question replied “I don’t know the market that well”.
Unproductive Investment
Again, in June 2022 when answering a question about CMC’s investments in enhancing its offering he initially said “We don’t think about the costs”. Although he then “corrected” himself when he remembered who he was talking to, the numbers suggest his instinctive answer was correct:
The above figures show CMC’s major fixed costs in £m. Fixed staff costs have been adjusted on a best endeavours basis to match the current reporting presentation.
So what have CMC got to show for these out of control fixed staff costs? Some examples:
- In 2020 they started a “technology transformation” project led by the CTO appointed in July. By November they had increased technology staff from around 200 to 265, but existing team members reported feeling excluded from decision making. Following the departure of the CTO less than 18 months later reports on Glassdoor suggest the project had been cancelled.
- In June 2021 CMC announced the development of a non-leveraged UK stockbroking platform, something long offered by main competitor IG Group and which has helped prop up revenues after leveraged trading volumes collapsed post-covid. The platform was late in launching and arguably still hasn’t meaningfully done so: It is not listed on the London Stock Exchange’s list of retail brokers, not advertised, not on most comparison sites, only “the UK’s 250+ biggest” (12% of the total) companies can be traded and there are reported issues withdrawing money.
- An review on Glassdoor claiming to be from an employee: “Some members of senior management (including the CEO) are prone to making project decisions based on their personal opinion, backed by little (or no) market and customer research. Because of this, a lot of effort has been invested in projects that have flopped completely”.
The mis-allocation of capital goes beyond labour-intensive development projects: the recent £30m share buyback was carried out at prices averaging twice the current 130p.
Unpopular
So what does the city think of Cruddas? IG Group shares recently dipped when it was announced their CEO was on medical leave but have since bounced back, whereas shares at CMC have continued to fall. Perhaps investors are of the view than having no CEO is better than having Lord Cruddas in charge?
Employees seem to think so. According to Glassdoor, only 37% of staff approve of the CEO and most recent reviews specifically mention him in a negative light. His decision making and behaviour appear to be the direct cause of some severe issues with employee morale, with this comment being fairly typical:
Advice to Management: There is nothing management can do to fix the problem whilst the CEO remains. Advice is [for] everyone to leave
Current anger is concentrated around a decision at the beginning of July to ban working from home with less than five full days’ notice:
…the CEO changing the work from home policy, from an agreed longstanding 3 days in the office, to 5 days in the office, with one weeks notice, and a rushed email, leaving employees scrambling around to make alternative arrangements. Even senior managers and HR were completely in the dark, and the CEO and Deputy CEO decided to take 2 weeks holiday immediately following the announcement.
Other reviews report there is now a complete lack of flexibility or exceptions to the rule, something that may be contrary to employment and equality law.
However the complaints go back long before then, including several references a staff meeting where they understood something along the lines of “I’m so much richer than you because you’re lazy”. After having listened to a few investor calls this is something I find more than credible.
Liability
So is Peter Cruddas now a liability for CMC Markets, both operationally and from a valuation perspective? What will the upcoming Labour government make of him and the spreadbetting / CFD industry? Is there any floor to the share price while he remains in charge? No cash is required for these questions, which I will attempt to answer in part two, coming soon.
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