UBS upgrades Close Brothers to buy with 555p target as motor redress fears seen overdone Proactive uses images sourced from Shutterstock
Close Brothers Group PLC (LSE:CBG), the UK specialist lender, has been upgraded to ‘buy’ from ‘neutral’ by UBS, which argues the stock’s near-40% decline year-to-date has created a compelling entry point that materially undervalues the group’s recovery prospects.
UBS retained its 555p price target, implying more than 40% upside to the current 383p share price.
And it said the market is embedding a higher risk of further motor finance redress provisions than the broker considers likely, while failing to adequately price in a forecast recovery in return on tangible equity (ROTE) to a sustainable 9%.
The bank reported first-half adjusted pre-tax profit 18% ahead of consensus, with costs 2% better than expected and impairments 13% below forecasts at a bad debt ratio of 0.8%, partly reflecting an updated motor finance model, against a full-year average of 1.0% in the prior year.
Close Brothers increased its restructuring spend guidance for the current financial year to £10-15 million and added new guidance of £30-40 million for the following year, with the combined programme expected to deliver annualised cost savings of around £60 million by the end of FY27 and a headcount reduction of more than 20%.
UBS said the stock is trading at 7.3 times FY27 earnings per share, a 30% discount to its 10-year average and below the sector multiple of 8.5 times, and at just 0.4 times tangible net asset value.
At the level, the bank said it implies the market is pricing in either a ROTE of below 6% or a doubling of the existing £300 million motor provision.
The FCA is due to publish its final approach to motor finance redress on 30 March.