Interims from Close Brothers Group PLC (LSE:CBG) were solid on the surface, but the motor finance issue remains the elephant in the room, according to analysts, tempering investor enthusiasm despite a profit beat.
The merchant bank's underlying profits for the six months to end-January came in 18% ahead of consensus, with UBS noting the outperformance was driven by lower costs and reduced impairments, alongside a stronger-than-expected capital ratio.
Panmure Liberum analyst Rae Maile described the results as “fine”, highlighting profits of £65.2 million ahead of expectations and cost savings coming through earlier than planned, which he said was a “good thing”.
However, the loan book fell 2% to £9.2 billion, missing growth expectations and raising questions over income momentum. UBS similarly pointed to weaker lending trends, despite resilience in motor and asset finance.
The group has increased restructuring efforts, targeting around 600 job cuts and £60 million of cost savings by FY27, while maintaining its broader profitability and capital guidance.
Attention remains firmly on potential motor finance redress costs. The company said it can manage “a variety of outcomes”, though uncertainty persists ahead of regulatory clarity.
Maile said: "The elephant in the room remains the motor finance situation."
He said a Rumsfeldian approach is best, admitting that "we simply cannot know" how big the impact will be, but he believes the company can cope with a charge of around £500 million.
The shares could trade on around 6 times earnings, he added, describing Close Bros as a “cheap UK lender”, but added that market concerns over capital strength and future liabilities will continue to weigh.