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1. Company Snapshot

1.a. Company Description

Close Brothers Group plc, a merchant banking company, provides financial services to small businesses and individuals in the United Kingdom.It operates through five segments: Commercial, Retail, Property, Asset Management, and Securities.The company offers various savings products, including personal and business savings, and pension deposits.


It also provides asset finance, asset-based lending, commercial vehicle hire, short-term bridging finance, insurance premium finance, invoice discounting and factoring, and property finance products.In addition, the company offers funding services for general aviation aircraft, and various leisure and commercial vessels; sale and rent back services for the brewing sector; broker finance services to the agriculture, construction, manufacturing, and transport industries; leasing services for the construction, manufacturing, IT equipment, and specialist assets; and loan, hire purchase, leasing, and refinancing services to the professional service sector, including dental, medical, pharmacy, and veterinary sectors.Further, it provides financial education, investment management, and financial planning and advice services; self-directed services that help investors to manage their portfolio online; and services for financial advisers.


Additionally, the company offers liquidity and flexible execution services to retail stockbrokers, wealth managers, and institutional investors; market making, sales, research, and corporate broking services; and dealing, custody, and settlement services to the institutional, wealth management, and brokerage clients.Close Brothers Group plc was founded in 1878 and is headquartered in London, the United Kingdom.

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1.b. Last Insights on CBG

Recent positive drivers behind Close Brothers Group plc's performance include the appointment of new leadership, with Mike Morgan taking on the role of Group CEO, bringing fresh perspectives and expertise. Additionally, the company has strengthened its Motor Finance division with key appointments, such as Clare Bradley as Commercial Director and Neil Leonard as Marketing Director, focusing on product innovation and brand growth. Furthermore, the sale of Close Brothers Asset Management to Oaktree has facilitated strategic partnerships and investment, while the rebranding of TrinityBridge signals independence and future growth. The company's involvement in the car finance sector, following the Reeves case, has also had a positive impact, with shares surging alongside those of Lloyds.

1.c. Company Highlights

2. Close Brothers' 2025 Preliminary Results: A Resilient Performance Amidst Challenges

Close Brothers reported an adjusted operating profit of GBP 144 million for the 2025 financial year, reflecting the impact of actions taken to strengthen the capital position and simplify the business. The company's earnings per share (EPS) came in at 0.4862, below analyst estimates of 0.582. The net interest margin remained strong at 7.2%, despite a 4% reduction in the loan book to GBP 9.5 billion. The company's income statement showed adjusted operating income reduced 2%, driven by a marginal decline in Banking income as the loan book reduced and lower group net interest income.

Publication Date: Oct -28

📋 Highlights
  • CET1 Capital Ratio: Strengthened to 13.8% (or 14.3% post-Winterflood sale), preserving £400m capital since March 2024.
  • Cost Savings: Achieved £25m annualized savings by FY25, with £60m more planned over 3 years (£20m/year).
  • Adjusted Operating Profit: Recorded £144m, despite a £165m provision charge and £30m Vehicle Hire impairment.
  • Loan Book Reduction: Declined 4% to £9.5bn due to U.K. motor lending pause and moderation measures.
  • Bad Debt Ratio: Remained stable at 1%, below long-term average of 1.2%, with £92m impairment charges down 6%.

Capital Position and Liquidity

Close Brothers generated or preserved over GBP 400 million of CET1 capital since March 2024, achieving a CET1 capital ratio of 13.8% or 14.3% after the sale of Winterflood. The company's liquidity coverage ratio stood at 1,012%, with total funding of GBP 12.7 billion and a diverse funding base. As Fiona McCarthy, Group CFO, noted, "We've maintained a strong capital funding and liquidity position."

Cost Optimization and Simplification

The company delivered GBP 25 million of annualized savings by the end of FY '25, ahead of initial guidance, and announced at least another GBP 20 million of additional annualized savings in each of the next 3 years. Close Brothers also exited the vehicle hire business, a loss-making operation, resulting in an asset impairment charge of GBP 30 million. The company is guiding to a range of £410 million to £430 million for FY '28, reflecting the offset from inflationary pressures and other cost drivers from the savings it is targeting.

Valuation and Outlook

With a Price-to-Tangible Book Value (P/TBV) ratio of 0.43, Close Brothers' valuation appears reasonable. The Net Interest Margin (NIM) of 7.2% is strong, and the company's dividend yield is currently 0%. Analysts estimate next year's revenue growth at -10.6%. Given the company's efforts to simplify and optimize its business, it is well-positioned to benefit from the economy and demand recovery.

Challenges and Opportunities

The company faces challenges in the SME segment due to higher interest rates and inflation, but expects to see 5-10% growth over the cycle. Mike Morgan, Group Chief Executive, emphasized the company's focus on core businesses and its potential for growth. The company's loan book is predominantly secured or structurally protected, and it remains confident in the quality of its loan book.

3. NewsRoom

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FCA issues new deadline for car finance scandal complaints. Here's what you should know

Dec -04

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Close Brothers expands asset finance offering to include hydrogen projects

Oct -31

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What is the car finance scandal? FCA, Lloyds and Barclays reveal new details

Oct -23

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Close Brothers nearly doubles expected bill for car loan redress to £300m

Oct -14

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FTSE 100 falls from record highs as Lloyds and HSBC struggle

Oct -09

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Banks Warn of Heavier Hit From U.K. Car-Loan Redress

Oct -09

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Lenders warn of bigger hit to finances from £11bn car loan compensation plan

Oct -09

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Lloyds Banking Group, Close Brothers Warn of Heavier Hit From U.K. Car-Loan Redress

Oct -09

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.62%)

6. Segments

Commercial

Expected Growth: 6.5%

Close Brothers Group plc's 6.5% commercial segment growth is driven by increasing demand for asset-based lending, growth in invoice finance, and expansion into new markets. Additionally, strategic acquisitions, strong relationships with SMEs, and a robust risk management framework contribute to the segment's growth.

Retail

Expected Growth: 6.0%

Close Brothers Group plc's Retail segment growth of 6.0% is driven by increasing demand for consumer credit, expansion of merchant acquiring services, and strategic partnerships. Additionally, the segment benefits from a strong online presence, diversified product offerings, and a focus on customer experience. These factors contribute to the segment's robust growth, outpacing industry averages.

Asset Management

Expected Growth: 7.5%

Close Brothers Group plc's 7.5% asset management growth driven by increasing demand for diversified investment products, strategic acquisitions, and expansion into new markets. Strong brand reputation, robust risk management, and investment in digital capabilities also contribute to growth. Additionally, the company's focus on sustainable and ESG-focused investments resonates with environmentally conscious clients, further boosting assets under management.

Property

Expected Growth: 6.8%

Close Brothers Group plc's 6.8% growth in Property segment is driven by increasing demand for commercial real estate, expansion into new markets, and strategic acquisitions. Additionally, the company's focus on providing tailored financial solutions to property investors and developers has contributed to its growth. Furthermore, the UK's growing economy and rising property prices have also supported the segment's expansion.

Securities

Expected Growth: 7.2%

Close Brothers Group plc's 7.2% growth is driven by its diversified business model, strong market position, and strategic acquisitions. The company's lending divisions, including Commercial and Retail, have seen significant growth, while its Winterflood business has benefited from increased market volatility. Additionally, the company's focus on digital transformation and cost savings initiatives have contributed to its overall growth.

Group

Expected Growth: 7.0%

Close Brothers Group plc's 7.0% growth is driven by its diversified business model, strong market position, and strategic acquisitions. The group's lending divisions, including Commercial and Retail, have seen significant growth, while its Securities arm has benefited from increased market volatility. Additionally, the group's focus on digital transformation and cost savings initiatives have contributed to its overall growth.

7. Detailed Products

Commercial Banking

Provides a range of banking services to small and medium-sized enterprises, including lending, deposits, and treasury management.

Retail Banking

Offers a range of personal banking services, including savings accounts, loans, and credit cards.

Asset Finance

Provides financing solutions for businesses to acquire assets such as vehicles, equipment, and technology.

Invoice Finance

Offers financing solutions to businesses to improve their cash flow by advancing funds against outstanding invoices.

Securities

Provides a range of securities-based services, including stockbroking, investment management, and wealth management.

Wealth Management

Offers a range of wealth management services, including investment management, financial planning, and estate planning.

8. Close Brothers Group plc's Porter Forces

Forces Ranking

Threat Of Substitutes

Close Brothers Group plc operates in a niche market, providing specialized financial services. While there are substitutes available, they are not easily accessible, and the company's strong brand reputation and customer loyalty mitigate the threat of substitutes.

Bargaining Power Of Customers

Close Brothers Group plc's customers are largely institutional investors and high net worth individuals, who have limited bargaining power due to the specialized nature of the company's services.

Bargaining Power Of Suppliers

Close Brothers Group plc's suppliers are primarily technology and infrastructure providers, who have limited bargaining power due to the company's scale and negotiating power.

Threat Of New Entrants

The financial services industry is heavily regulated, and new entrants face significant barriers to entry, including high capital requirements and regulatory hurdles, making it difficult for new competitors to enter the market.

Intensity Of Rivalry

The financial services industry is highly competitive, with many established players competing for market share. Close Brothers Group plc faces intense competition from other specialized financial services providers.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 64.48%
Debt Cost 4.17%
Equity Weight 35.52%
Equity Cost 7.94%
WACC 5.51%
Leverage 181.54%

11. Quality Control: Close Brothers Group plc passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Quality: 5.2

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Momentum: 5.5

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Close Brothers

A-Score: 4.4/10

Value: 7.8

Growth: 1.9

Quality: 3.5

Yield: 4.4

Momentum: 8.5

Volatility: 0.3

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

4.61$

Current Price

4.61$

Potential

-0.00%

Expected Cash-Flows