Berenberg trims target on Close Brothers following 'cautious' update
By Iain Gilbert
Date: Thursday 23 Jan 2020
(Sharecast News) - Analysts at Berenberg lowered their target price on merchant banking group Close Brothers' shares to 1,410.0p from 1,460.0p following the second consecutive cautious trading update from the company.
Berenberg pointed out how Close Brothers shares had fallen following the update, with a combination of lower growth and margins in the banking division being the primary factors behind the market's reaction.
As a result, the German bank lowered its operating profit estimates for Close's banking division from £253.0m to £240.0m, which in turn dragged on its group profit forecasts, return on equity and price target.
"Given the late stage of the cycle, and Close's risk-focused strategy, these results are not surprising," said Berenberg.
However, the analysts also said: "If anything, the trading update should give investors confidence that management is adhering to its strategy".
Berenberg said its overall view on Close remained unchanged at 'hold'.
"Close is a great business. It is well run, high margin, well capitalised and has a long track record of profitable operating performance," said Berenberg.
However, the analysts noted that if current trends persisted, there was the potential for numbers to be reduced further in the short run, although that would hopefully create an opportunity to 'buy' the shares "cheaply".
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