LONDON (ShareCast) - (Sharecast News) - RBC Capital Markets initiated coverage of Close Brothers with a 'sector perform' rating and 1,500p price target on Tuesday, highlighting little upside at the current valuation.
The Canadian bank said a strong track record is driving a premium valuation for Close Brothers relative to the UK banks and lenders, of around 11x estimated 2020 price-to-earnings compared to 7-9x at other names, but leaves it "with little to get a excited about given slower growth at tighter margins with Brexit still a risk".

It pointed out that net interest margin has declined fairly consistently since 2012, reflecting a lower cost of risk environment and competition. It also noted that growth has pulled back due to competition.

"We expect loan growth of 7% 2018/21e compound annual growth rate, down from an average 11% year-over-year in the previous five years. Given the short duration of the loan book and the high proportion of commercial lending, however, loan growth can quickly change with any potential shock to the UK economy."

RBC expects capital to increase modestly from 12.7% in 2018 to 13.9% in 2021 due to lower loan growth, with a 50% dividend payout ratio which leads to a 5% per year rise in dividend per share.

At 1300 BST, the shares were down 1.1% at 1,569p.

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