Close Brothers suffered a drop in profits for the year to July, although the fortunes of its three trading divisions varied significantly. The star performance came from the merchant bank's securities division, which accounted for over half the group's profits, and where Winterflood strengthened its position as the leading market-maker to the UK retail stockbroking sector. Increased market volatility led to a 56 per cent rise in bargains per day to 42,000, and adjusted operating profits in the securities division jumped by 68 per cent to £64.9m.
The banking division managed to increase the loan book by 6 per cent to £2.4bn, with good demand for motor and property finance. Adjusted operating income rose by 14 per cent to £235.5m, but operating profits slipped from £74.5m to £54m as bad debt provisions more than doubled to £59.9m. And the asset management side was also hit by the difficult investment climate that only started to show signs of improvement in the closing few months of the financial year. Adjusted operating profits fell 63 per cent to £12m, while funds under management at the year end were down 17 per cent at £6.8bn. However, all of this reflected market movements, and the private client side of the business actually attracted net new funds of £161m. Even so, management fees fell by 32 per cent to £54.3m, while performance fees and investment income slid from £12.2m to £3.1m.
But Close Brothers has enough financial strength to see out the tough trading conditions. For the first time, the group has raised funds in the form of retail deposits, successfully attracting over £1bn, and despite the difficulty in raising wholesale funding, the group has succeeded in replacing its expiring facilities. The group has maintained a strong capital base, with a core tier 1 capital ratio of 14.8 per cent and a total capital ratio of 16.6 per cent, both considerably stronger than its rivals. The group also raised £67m after completing the sale of its corporate finance division to Daiwa Securities.
Numis Securities expects 2010 pre-tax profits of £102.1m and EPS of 53.8p (2009: £100.3m/54.2p).
| CLOSE BROTHERS(CBG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 792p | MARKET VALUE: | £ 1.1bn | |
| TOUCH: | 790-792p | 12-MONTH HIGH: | 803p | LOW: 384p |
| DIVIDEND YIELD: | 4.9% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 481p* | |||
| Year to 31 Jul | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|
| 2005 | 112 | 49.8 | 28.5 |
| 2006 | 157 | 74.1 | 32.5 |
| 2007 | 190 | 90.4 | 37.0 |
| 2008 | 118 | 58.3 | 39.0 |
| 2009 | 88.3 | 43.6 | 39.0 |
| % change | -25 | -25 | - |
Ex-div:07 Oct Payment:19 Nov *Includes intangible assets of £108m or 75p a share | |||
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