Investec cut its rating on Close Brothers Group to ‘sell’ on Monday, after a spike in the merchant bank’s share price.
Investec, which has cut its rating to ‘sell’ from ‘hold’, said that after a four-week 26% rally, Close Brothers’ shares were trading at 1.2 times 2023 estimated full-year tangible net asset value, “which for a UK bank rather feels like a price-to-NAV multiple from a bygone era”.
Analyst Ian Gordon continued: “Ahead of Close Brothers’ first quarter [trading update], due Thursday, we don’t have any particular new concerns: we continue to expect slowing loan growth and slightly higher impairments within the dominant banking division to act as a drag to group profitability/returns.
“Close Brothers’ return on tangible equity was an ‘ordinary’ 12% in 2022, which will likely decline through 2023-2025.”
He added that “in essence, this is a straight-forward valuation call. We believe Close Brothers is now a little too expensive on an absolute basis, with significantly bitter value available elsewhere in the sector, notably OSB Group, Virgin Money and Barclays – all ‘buys’.”
Close Brothers’ target price, of 1,025p, has been left unchanged.
As at noon GMT, shares in the FTSE 250 firm were down 5% at 1,069p.
