Join our community of smart investors

Close Brothers' focus pays off

The merchant bank is the first listed UK lender to return to the distribution list
September 22, 2020

On his first day as Close Brothers' (CBG) chief executive, Adrian Sainsbury got to announce a UK banking first since the Covid-19 pandemic took hold. After a “resilient financial and operational performance” in the six months to July, his firm is to resume shareholder distributions.

IC TIP: Buy at 993p

That the FTSE 250 firm saw fit to do this says three things about Close’s business, and the board’s confidence in it.

First, full-year results show the group’s structure – comprising a merchant bank, an asset manager and a securities brokerage – softened the crisis’ effects. Though a deteriorating outlook meant £183m in loan impairment charges, a spike in trading activity lifted operating profit at Winterflood by 140 per cent to £47.9m. Robust net inflows to the managed money arm also insulated it from weaker equity markets.

Second, despite adopting some bleak macroeconomic assumptions – including a baseline view that UK unemployment hits 7.1 per cent and GDP falls 8.5 per cent in 2020 – Close’s commercial loans are more focused on specialist lines such as printing presses, and less on hard-hit sectors like hospitality and aviation. A preference for secured lending means management is “very comfortable” in current debt provisions.

Third, though it has lent via CBILS, Close is a less political beast than its larger peers. The Bank of England, which told high street lenders to suspend dividend payments in March, was consulted on Close’s pay-out plans, Mr Sainsbury says.

FactSet-compiled consensus forecasts are for earnings of 68.6p per share in 2020 and 74.7p in 2021.

CLOSE BROTHERS (CBG)  
ORD PRICE:993pMARKET VALUE:£1.50bn
TOUCH:993-995p12-MONTH HIGH:1,663pLOW: 849p
DIVIDEND YIELD:4.0%PE RATIO:14
NET ASSET VALUE:958pLEVERAGE9.0
Year to 31 JulTotal operating income (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201668722912657.0
201776126313060.0
201880627113663.0
201981626513466.0
202086614172.840.0
% change+6-47-45-39
Ex-div:15 Oct   
Payment:24 Nov