Close Brothers Group PLC (LSE:CBG) has had a bruising spell in the market. But for income investors and contrarians alike, there may be light at the end of the tunnel.
The shares have been de-rated sharply and now trade at just 0.4 times tangible book value. That kind of discount is rare for a bank with a long record of lending discipline and capital strength.
The immediate problem has been cost control, or the lack of it. Earnings expectations have been cut repeatedly over the past year as expenses drifted higher.
RBC believes the tide is about to turn. The broker has reiterated its 'outperform' rating and lifted its price target from 340p to 400p.
That implies upside of more than 15% from current levels, with a prospective dividend yield above 7% offering an additional cushion.
The catalyst, in RBC’s view, will come from a renewed focus on operating efficiency.
Cost pressure is expected to ease from September, and by full year 2027, the bank’s analysts are already 2% more optimistic than the consensus on the cost base. Adjusted pre-tax profit estimates are 8% ahead of the market.
The next test will be Close Brothers’ third quarter trading update, due on 21 May.
That may help frame the timeline for any earnings recovery. But with expectations so low and the valuation already heavily compressed, there is room for upside even on modest improvements.
Close Brothers has long been known for conservative underwriting, a strong capital buffer and a dividend that management has worked hard to protect. If the cost base can be brought back under control and margins stabilise, there is scope for a rerating.
For now, it remains a speculative recovery story. But in a market starved of high quality value ideas, Close Brothers may just offer a rare combination of income, optionality and resilience.