The Close Brothers continues to perform well across the board, and its wide range of services within finance helps reduce overdependence on one department. The banking division which arranges loans for small to medium-size businesses has proved to be the best performer recently as volatility in the financial markets deterred some traders from participating. The company’s lending unit has continued to grow since the credit crisis when the major banks started to trim the size of their loan books. The recovery in the UK economy has led to a higher demand for credit and Close Brothers is expanding in this area.
Winterflood Securities is a subsidiary of the group, and it derives the majority of its money from market-making. The business suffered due to the high level of volatility at the end of last year. The unusually high swings in global equity markets discouraged some clients from trading, but the drop in volatility since then will appeal to its customers. The asset management division is holding steady, and the last update revealed assets under management of £9.7 billion.
Close Brothers has witnessed cash inflows to its asset management arm over the years as stock markets move higher, but inflows of funds are beginning to plateau. The company has benefitted from the regulatory changes to the asset management industry, and is looking to increase the number of portfolio managers in the coming years.
The merchant banking group will release its full-year figures in September, and the dealers are expecting revenue of £707 million and adjusted net profit of £171 million. These estimates equate to a 7.2% increase in revenue and an 11% rise in adjusted net profit. The financial services company will report its first-half numbers in March, and the consensus is for revenue of £353 million.
Equity analysts are bullish on the company. Out of the 14 recommendations on the stock, nine are buys, four are holds, and one is a sell. The average target price is £15.78, which is 5% above the current price. Investment banks also hold a bullish outlook on Investec, and out of the 14 ratings, seven are buys and seven are holds. The average target price is £6.20 which is 15% above the current price.
The 50-day moving average at £14.92 is providing support and should that metric be held the record high of £15.30 will be the initial target. If that level is cleared £16 will come into play. A sizeable move below the 50-DMA would turn the level into resistance and the 200-DMA at £13.85 will be the target.