Close Brothers Group PLC (LSE:CBG) shares rose 6% to 539p after RBC Capital Markets upgraded the lender to 'outperform', arguing the market is underestimating how much further costs can be cut.
RBC lifted its price target to 625p from 475p, having previously rated the stock at Sector Perform. The broker said the shares do not fully reflect the bank’s ability to slim down its cost base while continuing to grow its loan book.
At the heart of the upgrade is a more optimistic view on expenses. RBC believes Close Brothers has “more fat that it can trim”, particularly as restructuring efforts continue to bed in.
It now expects costs in the 2028 financial year to come in about 5% below consensus forecasts. That feeds through to profits, leaving the broker around 7% ahead of the market on profit before tax.
Capital strength was another factor behind the call. RBC said the bank’s core equity tier one, or CET1, ratio should be strong enough to absorb several pressures at once.
These include a full top-up for potential motor finance issues, additional restructuring costs and mid-to-high single-digit loan growth.
The upgrade comes at a sensitive time for the sector, with investors still cautious on UK banks exposed to consumer credit. Close Brothers has significant operations in motor and asset finance, areas that have been under scrutiny as borrowing conditions tighten.
RBC’s view is that the balance of risks is now improving. With capital buffers holding up and management still able to pull cost levers, the broker sees scope for earnings to surprise on the upside.