Struggles in Q3 lead to rating downgrade for Close Brothers
Close Brothers Group PLC experienced a downgrade from Peel Hunt analysts following a lacklustre third-quarter performance that failed to assuage investor apprehensions. The banking institution reported higher net expenses of £13.9 million in the recent quarter, an increase from £11.6 million in the same period last year.
The persistent complaints surrounding the motor finance scandal continue to beset the lender following its high-profile Supreme Court case in April. The ruling from the highest court in the land, expected by early summer, is deemed the "main event" by Peel Hunt analysts. Despite reiterating a hold rating on the stock, they downgraded their assessment due to potential harm to the bank's lending portfolio.
Lending saw a decrease of 0.9% in the quarter, amounting to £9.7 billion—a 3.5% dip compared to the same period the previous year. The analysts forecasted a decrease in earnings per share for the full year by 4%, and a decline of 7% and 9% respectively for the subsequent two years.
"While valuation multiples continue to appear inexpensive, this reflects the uncertainty surrounding motor finance commissions and the current depressed return on equity from the bank," said analysts Stephen Payne and Stuart Duncan.
On a brighter note, Winterflood, Close Brothers' execution service provider for retail traders, managed to swing back to profitability in the quarter as a result of market turbulence triggered by President Trump's erratic tariff agenda. Winterflood secured an operating profit of £0.4 million, compared to a loss of £800 million in the first half and a profit of £1.7 million in the third quarter of 2024. However, these figures were a far cry from the £1.7 million in profit recorded in the third quarter of 2024.
Given the lingering motor finance case, Close Brothers' share price plummeted nearly 7% last week after issuing its most recent trading update. Over the past year, the stock has plummeted by over 25%. Despite recent rallies propelling the price up to 360p, it still languishes far below the summer 2024 high of 548.50p.
In light of these developments, the outlook for Close Brothers Group plc remains mixed, with ongoing market concerns surrounding the motor finance scandal, broader financial pressures, and recent analyst downgrades. Investors should monitor ongoing developments regarding the regulatory environment and the company's expense management.
- The motor finance scandal, a persistent issue for Close Brothers Group PLC, may impact their lending portfolio, as analysts from Peel Hunt anticipate harm due to the case.
- The downgrade of Close Brothers Group PLC by Peel Hunt analysts was partly due to concerns about potential damage to the bank's finances, as well as the uncertainties surrounding motor finance commissions.
- In the realm of business and finance, Close Brothers Group PLC is faced with mixed outlook due to ongoing market concerns related to the motor finance scandal, broader financial pressures, and recent analyst downgrades, making it a point of interest for investors and stock market analysts.
