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Close Brothers hit by Winterflood decline

Strong results for the banking and asset management division offset steep profit falls for Winterflood
March 15, 2022
  • Diverse revenue streams translate into resilience
  • Well-positioned to manage a period of heightened uncertainty

The diverse nature of Close Brothers’ (CBG) business model enabled it to offset a 74 per cent fall in operating profits from its Winterflood market making segment, leading to a slight increase in overall group profitability at the half-year mark. 

Half-year figures were ahead of analyst expectations, with Close's banking division leading the charge. Its loan book increased 8.2 per cent to £8.6bn, with an improved net interest margin of 7.9 per cent, from 7.7 per cent in 2021. Banking profit accounted for over 90 per cent of the group’s total, rising 26 per cent to £120mn – ahead of Numis's forecast of £116mn. 

The asset management division – which appointed a new chief executive earlier this month – also proved resilient, with annualised net inflows of 8 per cent and profit growth of 18 per cent, but negative market movements led to managed client assets remaining broadly flat over the period. The steep profit decline from Winterflood was largely a reversal of supernormal profits earned in 2021. 

Shareholders will welcome the return of the dividend to its pre-pandemic level, and the group’s high margins, low leverage, and diverse revenue streams mean it should be reasonably well-insulated against the tough conditions it faces – rising inflation and the economic fallout from Russia’s invasion of Ukraine. 

Shareholders have not had a good run with the share price down by close to a third over the past 12 months. Numis’s 2022 forecasts have the shares on a forward price/earnings ratio of 9.3 times with a dividend yield of 5.1 per cent. Despite challenging markets, the lowly rating looks unwarranted. Buy

Last IC view: Buy, 1,563p, 27 Sept 2021

CLOSE BROTHERS (CBG)   
ORD PRICE:1,132pMARKET VALUE:£1.70bn
TOUCH:1,127-1,132p12-MONTH HIGH:1,702pLOW 999p
DIVIDEND YIELD:5.7%PE RATIO:8
NET ASSET VALUE: 1,069pLEVERAGE:8.98
Half-year to 31 JanTotal operating income (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202147412763.218.0
202247212963.522.0
% change-1+1+0.5+22
Ex-div:24 Mar   
Payment:27 Apr