Close Brothers Group PLC (LSE:CBG) has given the bulls something to cheer, and Shore Capital is among them.
The broker reiterated its Buy rating after the specialist lender beat forecasts, thanks mainly to cutting costs faster than anyone expected.
Investors clearly agreed, sending the shares up 13% to 434.4p this morning.
That still leaves Shore's 495p target price around 14% above current levels.
Savings ahead of schedule
The headline number was costs.
Adjusted operating expenses came in at £431 million, comfortably below the £448 million the market had pencilled in.
Close Brothers delivered around £36 million of annualised savings, beating its own target of more than £25 million by a fair margin.
That fed straight through to the bottom line, with adjusted pre-tax profit of £120 million against £111 million expected.
Return on tangible equity, a key gauge of bank profitability, hit 5.5% versus 4.4% forecast.
Lending is picking up too, with underlying loan book growth accelerating to 4% in the second half.
The only fly in the ointment was a slightly higher bad debt ratio of 1.0%, due to a handful of problem property loans.
Room for the motor finance mess
New Basel 3.1 capital rules will trim the core capital ratio to 13.3% from January.
But Shore reckons that still leaves more than £300 million of headroom, enough to fund growth and cushion any further hit from the motor finance compensation saga.
Cheap on paper
Management is sticking to its goal of double-digit returns by 2028, while the market is only pencilling in 9%.
Meanwhile the shares trade at roughly 0.4 times tangible net asset value, meaning investors are paying 40p for every pound of hard assets on the balance sheet.
Analyst Gary Greenwood sees scope for a significant re-rating as returns recover.
He also expects dividends to return next year, forecasting a 19.4p payout.
