Close Brothers banks on lending

The company will reveal its third–quarter numbers on Friday 22 February, and the banking division is driving the profits higher.

Source: Bloomberg

Close Brothers had a strong first-half where profits rose by 28%, an even though the stockbroking arm division didn’t have its greatest six months, the traditional lending business and fund management operation more than made up for it.

The company built up a good reputation for lending to small and medium sized business during the credit crisis when the high street was cautious, and that has helped them now that the UK economy is emerging from the economic slump. The firm’s loan book increased from £4.6 billion to £4.9 billion, and operating profits within the banking operation rose by 26%, and write downs on loan fell by 12%.

The securities side of the group is broadly performing well, and assets under management as a net inflow helped the division swing to an operating profit of £1.1 million, compared with last year’s loss of £2.6 million. Winterflood Securities, the equities department, experienced a 12% decline in earnings, but this was anticipated as a lack of volatility in the markets prompted lower trading activity. Stock markets will receive a jolt of volatility when the Federal Reserve start to increase rates in the second half of the year, and this is what Winterflood Securities needs.

Close Brothers will reveal its full-year numbers in October, and the market is expecting revenue of £680 million and adjusted net income of £176 million. These forecasts represent a 3.1% rise in revenue and a 15% increase in adjusted net income.

Equity analyst are bullish on Close Brothers, and out of the 13 recommendations, eight are buys, four are holds, and one is a sell. The average target price is £16.80, which is 6% above the current price. Investment banks hold a moderately bullish outlook on Investec, and out of the 12 ratings, six are holds. The average target price is £6.28 which is 2.5% above the current price.

Close Brothers’ share price has been in an upward trend since 2009, and £16 is the initial target. If that is cleared the record high of £16.92 will be the target. Any pullbacks in the stock are likely to find support in the £15 region. 

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