Hits: 17

20 July 2020

Close Brothers – Trading Update

Share Price 1163p

Mkt Cap £1,759m

Conflict Disclosure: No Holding 

  • Update Banking loan book down 2.3% to £7.48bn though the company says activity has increased in June. NIM down from 7.9% to 7.6%. Further provision of £43m in Q4 making £167m for the year which implies a bad debt ratio of 2.3% (2019 0.6%). Net inflows year to date in asset management are 10% while winterfloods volumes are 46% up in H2 on the prior year.
  • Estimates PBT is anticipated to reduce by £119m which may come down further on the back of the £43m extra provision announced this morning bringing provisions to £167m for the year.
  • Valuation ROE looks likely to decline from the traditional 15% to 9%. The company trades at 1.3X NAV. PE 15X before downgrades.
  • Conclusion For those that take the view that these impairment provisions will subsequently be released this presents an opportunity. Meanwhile with a change of CEO there may well be peers eyeing up Close’s market leadership positions in niche lending markets. Breaking the group up could produce a value significantly ahead of the market price.

22 May 2020

Close Brothers  – Q3 Trading Update

Share Price 1081p

Mkt Cap £1,636m

Conflict Disclosure: No Holding



  • Results In Q3 the loan book reduced 1.2% to £7.53bn. NIM a little down to 7.7%. Bad debt charge was £86.7m which compares to £36.7m in H1. Asset Management experienced modest net outflows while AUM was down 7%. Winterflood experienced a substantial increase in volumes with daily averages being double H1. Outlook is highly uncertain.


  • Estimates  If the bad debt charge was maintained for 12 months it would remove £200m from profits which last year amounted to £264m. As they say, highly uncertain.


  • Valuation NTAV/share is 785p and NAV/share 930p so at 1081p the shares aren’t yet a bargain, but in normal conditions the shares are perhaps £15.


  • Conclusion I can’t help but feel that this company with such dominant positions in lending niches will receive a bid at some point or get broken up. With the current disruption and a change of CEO that could be sooner rather than later.

10 March 2020

Close Brothers – H1 Results 

Share Price 1138p

Mkt Cap 1,722m

Conflict Disclosure: No Holding

  • Results Operating profit down 9% to £125.7m (adjusted). Statutory down 8%. Banking profit was down 12 % on the back of “normalisation” of bad debts” and “investment” while the loan book was flat. Asset management improved operating profit by 17% to £12.6m and Winterflood increased operating profit 14% to £10.6m. Outlook is “well placed”.
  • Estimates Flat PBT was expected for the full year. Looks like a 5-10% downgrade.
  • Valuation PE 8.6X Yield 6%. 1.2X book.
  • Culture The metrics appear generally healthy. Trustpilot gives it a lofty 4.5 although there is a 41% gender pay gap. The outlook statement concludes recognising their climate change responsibility.
  • Conclusion Very cheap, but so are most stocks. Looking a little like a value trap.

22 January 2020

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Close Brothers – Trading Update 

Share Price 1567p

Mkt Cap £2,371m

Conflict Disclosure: No Holding

  • Update In Banking the loan book was flat at £7.68bn. Growth in commercial offset by decline in property with retail flat. NIM stable at 7.8% and bad debts remained low while increasing from 0.6% to 0.8%. Costs are expected to grow ahead of income this year. AUM grew 7.7% to £12.6bn, while Winterflood trading picked up with the market over the course of the last quarter. Outlook says they are well placed to support our customers (note the missing word “grow”)
  • Estimates £268.9m PBT appears to be consensus PBT to July 2020, a 1.6% increase from July 2019. With the bank accounting for c 85% of profits it is possible that winterfloods and asset management can deliver the profit growth.
  • Valuation PER 11.7, Yield 4.4%. Forecast ROE is 16% while it trades at 2X book value
  • Culture The company has a strong franchise and is so conservative it is not growing. Sometimes businesses have such a great business that they become too comfortable and thus stop taking risks.  I wonder if this may be relevant here.
  • Conclusion With the CEO standing down this year and the company being ex growth this could well be a time the company gets bid for.  I can get to perhaps a £20 SOTP valuation.  In the meantime the shares are cheap and provide a 4.4% yield

21 November 2019

Close Brothers  –Trading Update

Share Price 1455p

Mkt Cap £2,198m

Conflict Disclosure: No Holding

  • Update Banking increased loan book 0.9% in Q1with a stable NIM and a modest increase in bad debts. Asset Management increased AUM 1.7% to £11.9bn and Winterfoods was subdued.
  • Estimates. 2% increase in PBT is expected for the year to July 2020. £270m.
  • Valuation ROE anticipated in 16% and the shares trade at 1.8X book value.
  • Conclusion. The company is so cautious it is barely growing. Which may be a time when the impatience of markets is tested and with a SOTP close to £20 it could attract predators interests.  In the absence of a bid the 4.7% yield may be enough for the patient investor.

24 September 2019

Close Brothers – FY Results 

Share Price 1375p

Mkt Cap £2.08bn

Conflict Disclosure: No Holding

  • Results Adjusted group operating profit fell 3% to £270.5m. Banking was up 1% to £253.7m, asset management down 6% to £21.8m and Winterflood down 29% to £20m. The large part of the group – the bank- grew the loan book 5.7% to £7.6bn with a stable NIM of 7.9% and stable bad debts of 0.6% while the cost/income ratio increased to 50%. Tier 1 ratio was 13% and the ROE is 15.7%. Preben Prebensen standing down. Outllok statement “well positioned
  • Estimates EPS of 136.7p is in line with comprehensively guided expectations. 1.8% EPS growth is anticipated in the year ahead.
  • Valuation PER a little below 10X and yield 4.8%. Equity is £1.4bn and ROE 15.7% means it trades at price/book of 1.5X
  • Conclusion The shares are cheap.  With no synergy between the divisions there is a chance a bid comes now the CEO is standing down – perhaps from private equity.  It is possible to get to £20 on a SOTP valuation. In the meantime it is a safe haven.

19 July 2019

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Close – Trading Update 

Share Price 1451p

Mkt Cap £2.196bn

Conflict Disclosure: No Holding

  • News Banking division grew its loan book 5.1% to £7.6bn driven by commercial, premium lending and retail while property lending was flat.  Impairments remained low while NIM was down slightly from 8% to 7.8%. In Asset Management AUM was up 9% to £11.3bn and total client assets were up 6% to £12.9bn. Winterfloods was in line with H1.
  • Numbers A 3% PBT increase is anticipated for the year to £273m. With the bank contributing 95% of the profits that looks conservative
  • Valuation PER 10X Yield 4.7%. ROE 15% and P/Book 1.64
  • Conclusion The profits from Winterfloods are less than the central costs which is why this business would be better off broken up.  In the meantime The yield may be enough to keep shareholders happy. Perhaps shareholders should give Edward Bramson a call. I can get to a SOTP valuation above £20.

22 May 2019

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Close Brothers – Trading Statement 

Share Price 1495p

Mkt Cap £2.26bn

Conflict Disclosure: No holding

  • Update Trading is referred to as “solid”. Loan book up 3.6% year to date. Impairments remain low and NIM in line with 2018. In asset management client assets were up 4% between January and April. Winterflood trading is in line with H1
  • Estimates Forecasts anticipate 1% EPS growth to July 2019
  • Valuation   PER 10.7X  Yield 4.5%. Price/Book 1.7X for ROE of 16%
  • Conclusion This company is looking like a reliable annuity.  Essentially reining in lending by calling the cycle doesn’t make for a strong investment case. Which is why someone with a different view may take it out given the SOTP valuation is above £20.  This company imbues feelings like I once had about Latin homework.

12 March 2019

Close Brothers – H1 Results 

Share Price 1486p

Mkt Cap £2.22bn

  • Results PBT was down 2.5% to £102.2m. Winterfloods suffered with its contribution falling from £14.7m to £9.3m due to markets while asset management despite net inflows reduced its contribution from £11.4m to £10.8m. The banks grew profits modestly from £130.1m to £131.1m.  Within this commercial grew 19%, property 2% and retail fell 17% as the book is repositionedWith little loan book growth capital ratios strengthened with the Tier 1 at 13% (2018 12.7%). Outlook is “well positioned”
  • Estimates These results look to be in line with estimates for 2.5% PBT growth in the year to July 19.
  • Valuation The company has just delivered a 16% ROE and trades at 1.9X book value. PE is 10X and yield 4.6%
  • Conclusion This company appears to operate in a parallel universe to Funding Circle. While Funding Circle achieved £141m turnover last year this company is set to produce c £280m PBT this year.  Perhaps Close should start charging transaction fees to its borrowers in order to stop it being bought out by Funding Circle.

22 January 2019

Close Brothers – Trading Update 

Share Price 1562p

Mkt Cap £2.36bn

  • Update “Solid” 6 months. Banking loan book up 3.1% to £7.5bn driven by commercial and premium finance. Impairments remain low and NIM stable. Winterfloods solid but volumes significantly lower than the prior year. 3% decline in AUM despite net inflows. Outlook is “£solid” and well positioned.
  • Estimates Anticipate a 4% reduction in revenue to July 19 followed by a 5% growth in year to May 20.
  • Valuation PER is 11 and yield 3% for 3% EPS growth in current year.to July 19. ROE is 16% which in a low growth environment must be worth 2X book value of 891p per share or 1700p per share
  • Conclusion  The sum of the parts value remains well north of £20 per share and the earnings are barely growing at the moment. If it doesn’t get approached then shareholders can own a quality asset at an attractive price.

18 July 2018

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Close Brothers – Pre Close Update  

Share Price 1522p

Mkt Cap £2.3bn

·         Update Banking, which accounted for 84% of the operating profit last year grew it loan book 6.6% driven by commercial and property lending. Little change in the low impairment ratio is reported while the NIM is also stable. Winterflood (10% of EBIT last year) has also delivered a good performance while the asset management division reports total client assets up 8% to £12bn.

·         Estimates Consensus is anticipating 5% PBT growth in the year to July 2018. So Close can claim to be bringing the magical white bunny out of the hat with an above consensus performance over the year as they have in every year I can remember.

·         Valuation PER is 11X and yield 4.2%. The ROE is 15% and the price/book 1.7X which is very cheap.

·         Conclusion The reason the shares are cheap is the company is taking a cautious view of the outlook and earnings in the current year are expected to be flat which doesn’t add up to a very enticing investment case. With companies such as Metro Bank trading at a PER of 52 falling to 27X it seems that the market doesn’t share the cautious view of banks.  This arbitrage is likely to result in a bid for Close Brothers as it has done twice in the past. In the past the bids were blocked by Caledonia who no longer have a stake.  A £20 plus take out price is not difficult to justify.