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Close Brothers watches the margin

The challenger bank managed to offset pressure within the motor and asset finance markets
September 26, 2017

Warnings of increasing competition and deteriorating credit quality within the motor and commercial finance markets overshadowed a solid set of full-year trading figures for Close Brothers (CBG). At a group level adjusted operating profit was up 13 per cent to £265m, beating company-compiled consensus of £261m.

IC TIP: Buy at 1443p

Lending at its banking business increased 7 per cent to £6.9bn, despite a mixed performance from its products. Property finance grew operating profit almost a quarter, helped by provision releases for some legacy properties as well as a 12 per cent increase in lending. Premium inflation and new broker wins meant premium finance business accounted for the lion’s share of the 8 per cent growth in retail finance loans. However, increased margin pressure in motor finance caused the group to pull back on new lending. Adjusted retail finance operating profit was flat at £78m.

Competition within the asset finance market also led management to try to protect margins within its commercial finance business. However, an increase in invoice finance of a fifth and the acquisition of Novitas Loans meant adjusted operating profit for this division still grew 4 per cent to £73m. Elsewhere, securities business Winterflood benefited from volatility within UK markets post-referendum. Bargains per day were up more than a quarter to 65,000, boosting operating profit by almost half to £28m.

Analysts at Shore Capital expect adjusted net tangible assets of 780p at July 2018, up from 701p in FY2017.

CLOSE BROTHERS (CBG)  
ORD PRICE:1,443pMARKET VALUE:£2.19bn
TOUCH:1,443-1,444p12-MONTH HIGH: 1,715pLOW: 1,222p
DIVIDEND YIELD:4.2%PE RATIO:11
NET ASSET VALUE:815pLEVERAGE RATIO: 8.7
Year to 31 JulTotal operating income (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20135831648244.5
20146281899849
201567322011853.5
201668722912657
201776625912860
% change+11+13+2+5
Ex-div:12 Oct   
Payment:21 Nov