RBC Capital downgrades Close Brothers on full valuation
By Michele Maatouk
Date: Wednesday 06 Oct 2021
(Sharecast News) - RBC Capital Markets downgraded Close Brothers to 'sector perform' from 'outperform' on Wednesday, cutting the price target to 1,700p from 1,800p as it said the valuation looks relatively full.
The bank said it doesn't see a catalyst for the shares in the near term.
RBC noted that banking loan book growth of 11% in FY21 was much stronger than consensus expected going into the year.
It said consensus expectations for 6% growth in FY22 represent an achievable hurdle but management's guidance on the full year results call was cautious, with some debate about whether government loan schemes have brought demand forward.
"We are ahead of consensus modelling 8% growth in FY22, but the delta is a lot lower than last year," it said.
RBC also pointed out that Close Brothers has a small negative gearing to rising rates.
"It therefore made sense to own the stock when negative rates were first being priced into the curve in the summer of 2020. However, with UK rate expectations now firmly in positive territory (+60 basis points expected by the end of FY23), a potential tailwind has now turned into a potential headwind."
At 1000 BST, the shares were down 2.6% at 1,517p.
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