Join our community of smart investors

Close sees strong growth

The UK's recovering economy is driving strong demand for credit - good news for specialist lender Close Brothers
September 23, 2014

With the UK’s economic recovery continuing to drive robust demand for credit, specialist lender Close Brothers (CBG) grew adjusted operating profit for the year to 31 Jul by a fifth to nearly £201m. That helped boost the group’s return on equity by nearly three percentage points to a chunky 18.5 per cent.

IC TIP: Buy at 1424p

It was Close’s banking division, which generates over 80 per cent of group profit, that drove that performance. The business is focused on motor finance as well as property-related and SME lending, and strong credit demand helped the loan book grow 14 per cent to £5.3bn. A benign economic backdrop helped credit quality improve further, too: the impairment charge dropped 13 per cent to £44.1m.

True, the cost of growth did increase the division’s expenses by 18 per cent, reflecting greater loan volumes and increased headcount. Even so, however, operating profit jumped 15 per cent to nearly £182m.

Meanwhile, Close’s securities business - dominated by market maker Winterflood - received a boost from improved trading volumes, helped by a strong flow of stock market flotations during the year. Adjusted operating profit here rose 30 per cent to £33.5m, while a change in mix towards more profitable Aim trading bolstered income per bargain from £6.33 to £6.88.

The asset management arm made good progress, too. A 12 per cent increase in inflows from third-party IFAs and portfolio managers helped boost total assets under management by 7 per cent to £9.7bn. Management reckons the performance of this unit reflects a focus on advice-driven services as well as on its investment product offering. Divisional operating profit more than doubled to £9.9m.

Broker Numis Securities expects adjusted pre-tax profit of £222m for 2014-15, giving EPS of 119p (from 104p in 2013-14) and a 57.6p dividend.

CLOSE BROTHERS (CBG)

ORD PRICE:1,424pMARKET VALUE:£2.12bn
TOUCH:1,421-1,424p12-MONTH HIGH:1,503pLOW: 1123p
DIVIDEND YIELD:3.4%PE RATIO:14
NET ASSET VALUE:616p 

Year to 31 JulPre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201010147.439
20117929.640
201213568.641.5
201316482.044.5
201419610249
% change+20+24+10

Ex-div: 16 Oct

Payment: 25 Nov