Close Brothers Group PLC (LSE:CBG) shares fell sharply in early trade after annual profits more than halved as it made provisions for potential bad debts and the market doldrums led to lower income for its Winterfloods market-making arm.
After a 5.6% drop to 804.5p after the market opened, shares in the FTSE 250-listed merchant bank recovered as analysts said the results were better than expected.
Statutory operating profit before tax for the year to 31 July 2023 fell 52% to £112.0 million, which included £114.6 million of provisions in relation to litigation lending arm Novitas.
Excluding Novitas, adjusted operating profit still shrank 20% to £220.1 million.
Analysts at Peel Hunt said adjusted operating profit was ahead of the consensus forecast; primarily on the back of lower impairment losses than expected and strength in the banking division.
Close Bros proposed a dividend of 45p, resulting in 67.5p for the full year, and said that although the proposed level of dividend cover for the past year is below its historical range because of the Novitas impact, the payout “reflects our underlying performance and the board's confidence in the group's outlook”.
The analysts said this was just ahead of consensus of 67p, though the group’s CET1 capital ratio of 13.3% was slightly behind expectations of 13.5% but comfortably ahead of the minimum regulatory requirement.
A new capital target has been set for the CET1 ratio to be managed within a range of 12-13%, and directors said they will “assess the potential for further distributions to shareholders based on future opportunities”.