Close Brothers Group shares increased 2% to 1,093p in early morning trading on Friday, after the company reported a Banking loan book growth of 1.8% to £8.8 in correspondence to a 3.7% rise year-to-date.
The banking firm attributed its positive results to strong new business volumes in Commercial and Motor Finance, with resumed trading in Property linked to increased drawdowns from the group’s pipeline.
Close Brothers said its Close Brothers Asset Management (CBAM) assets fell as a result of negative market movements, with a slide to £15.4 billion against £15.8 billion and a decline in total client assets to £16.7 billion from £17.2 billion on 31 January 2022.
However, the group’s Winterflood sector saw an improvement in trading over the term, with a reported single loss day despite incredible market volatility.
The company highlighted its CBAM year-to-date annualised net inflows of 5% against 8% in HY1 2022, along with a strong pipeline of new business in progress.
Close Brothers noted a CET1 ratio of 14.9% on 30 April 2022, compared to 15.1% on 31 January 2022.
Meanwhile, the company confirmed an annualised year-to-date net interest margin of 7.8% against 7.9% in HY1 2022, which reportedly reflected the group’s continued focus on pricing discipline and a reduction in its cost of funds.
Additionally, Close Brothers commented that it expected the impact of interest rates floors of 1% in certain businesses to gradually drop away on the back of recent rises in interest rates, with the firm expecting no further impact from the floors once the UK base rates exceeds 1%.
The banking group caveated its results with a warning that the impact of the deteriorating economic condition was starting to encroach on its business, with its year-to-date bad debt ratio rising marginally to 1.2%, reflecting higher IFRS 9 provisions to account for a cautious outlook linked to external performance.
“Even at a time when consumer confidence is hitting 40-year lows, Close Brothers is running a highly profitable lending business, with high levels of capital reserves,” said Hargreaves Lansdown fund manager Steve Clayton.
“The bad debt provision has edged up, but aside from an already known issue in their former litigation lending business, now in run-down, bad debts remain incredibly low at just 0.5%.”
“The group’s strong margins make it an excellent cash generator, which has allowed them to grow the dividend significantly over time. This year we expect the group to pay out 66p per share, which is the same level that the group paid in 2019 before the pandemic. At that level, the shares will be yielding an attractive 6.1%, covered almost 2x.”
Close Brothers added that its Internal Ratings Based (IRB) application had received confirmation from the Prudential Regulation Authority (PRA) and was transitioned to Phase 2 during the period.
The institution said its outlook maintained a backdrop of inflationary pressure and macroeconomic uncertainty, however Close Brothers commented that its strong financial position and business model left the company in a decent position to support its clients and grow its sectors.
“We have performed well in the quarter, with continued good momentum across our lending businesses and robust demand in our core markets,” said Close Brothers CEO Adrian Sainsbury.
“We continue to support our customers and clients and maintain our strategic discipline against a backdrop of rising inflation and heightened uncertainty.”
“We are confident that our proven and resilient business model will allow us to continue delivering on our long-term track record of growth and profitability.”
