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Go long on Close

The small business lender has a solid track record of growth and its shares offer decent income for long-term investors
October 29, 2015

We have long favoured Close Brothers (CBG) for its ability to grow its loan book steadily, and its current undemanding share rating makes this a good time to join the party. At its last set of results in September, chief executive Preben Prebensen highlighted two things: the 11.5 per cent average growth rate in its loan book over the past 10 years, and the steadily increasing dividend - "new start-ups don't pay dividends," he boasted. Recent share price weakness means that payout produces a 4 per cent yield on this year's forecast payout and Close Brothers is likely to continue its record of making profitable loans through the business cycle. Both those prospects set it apart from the big commercial banks.

IC TIP: Buy at 1,459p
Tip style
Value
Risk rating
Medium
Timescale
Long Term
Bull points
  • Long-term growth in its loan book
  • Decent dividend yield
  • Strong loan demand from small businesses
  • Rising return on equity
Bear points
  • Stock market volatility
  • Banks' profits surcharge

Shares in Close Brothers have been marked down due to the impact of falling stock markets on the group's securities and asset management businesses. There will no doubt be more short-term pain if stock markets don't revive soon. But, looking beneath the market falls, there is a longer-term growth trend in assets under management and in the year to the end of July these rose a tenth to £10.8bn, pulling up fees and profits. Analysts at broker Peel Hunt think there will be further growth in assets managed, even with the equity market falls - but we will have to wait until a trading update next month to assess any damage.

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