On Friday, Deutsche Bank initiated coverage on Close Brothers Group PLC (CBG:LN) (OTC: CBGPY), a UK merchant banking group, with a Buy rating and set a price target of GBP 6.10 per share. The firm's stance comes after evaluating the potential outcomes of the ongoing Financial Conduct Authority (FCA) review on motor finance and its implications for the company.
The bank's analysis suggests that the concerns surrounding the FCA motor finance review have significantly weighed on Close Brothers' stock, creating an attractive entry point for investors. Deutsche Bank believes the eventual findings of the review will be manageable for Close Brothers and that the company's capital will stay within acceptable levels.
Additionally, the bank anticipates a rise in Return on Tangible Equity (ROTE) for the company and expects the current discount on the shares to normalize over time. The analyst cited the precedent set by the Payment Protection Insurance (PPI) ruling, which could imply a minimal impact on Close Brothers, considering the diversified risk within its motor finance lending portfolio.
The firm has factored in a conduct charge of £150 million, which it deems manageable and unlikely to necessitate significant adjustments to Close Brothers' financial outlook. Deutsche Bank's positive outlook is underpinned by the valuation of Close Brothers at 0.5 times tangible book value (TBV), which, according to the bank, justifies the risk for investors at the current share price levels.
InvestingPro Insights
As Close Brothers Group PLC (CBG:LN) (OTC: CBGPY) draws attention with Deutsche Bank's initiation of coverage, the latest metrics from InvestingPro provide additional context for investors considering a position in the company. With a market capitalization of $854.7 million USD and an attractive P/E ratio of just 4.75, Close Brothers presents a compelling valuation proposition. The company's stock is trading at a low Price / Book multiple of 0.37, reinforcing the notion of an undervalued investment opportunity as suggested by Deutsche Bank's analysis.
InvestingPro Tips highlight the company's history of dividend reliability, having raised its dividend for 3 consecutive years and maintained payments for 32 years, which could be of interest to income-focused investors. Furthermore, analysts predict profitability for the current year, and despite a challenging six-month performance, the company has seen a significant return over the last week. With these insights, investors can further evaluate the potential of Close Brothers Group PLC. For those seeking to delve deeper, additional InvestingPro Tips are available, offering a comprehensive view of the company's financial health and market position. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to a total of 11 InvestingPro Tips for Close Brothers Group PLC.
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