Close Brothers hopes for better times ahead as it updates investors on a difficult 2023
Merchant banking group Close Brothers will be hoping to draw a line under a difficult year when it reveals its full year results on Tuesday.
Shares in the FTSE 250 listed bank are down over 20 per cent in the year so far after it revealed in January that it was setting aside funds for bad loans in Novitas, the legal-finance specialist it acquired in 2017.
At its half year results in March, the firm set aside £100m to cover bad loans from Novitas, dragging its adjusted operating profits down 90 per cent to £12.6m.
In a trading update in May, however, the firm reassured that the Novitas provisions were sufficient. It reported a small increase in its loan book and inflows to its asset management arm despite market uncertainty.
Steve Clayton, head of equity funds at Hargreaves Lansdown, said: “The City will be hoping for a line to be drawn under the write-offs linked to Close Brother’s troubled Novitas legal financing division.”
Its market-making business, Winterflood, has also been hit hard by the trading slowdown and market volatility.
Clayton said it has struggled to recover from the surge in pandemic trading, suggesting investors will be looking for signs that the group has “a convincing strategy to rebuild profitability here”.
In a further subplot, last week Close Brothers announced the takeover of Bluestone Motor Finance in an attempt to push into the Irish motor finance market.
Analysts at Peel Hunt said the deal was “clearly not material on a group basis” but said it pointed to a willingness for Close Brothers to pursue inorganic routes to growth.
They concluded the deal was “strategically sensible but with limited shorter-term financial implications”. Investors will be keeping a close eye on any further detail on the group’s ambition for the market.
The consensus forecast is for pretax profit for the year to be £108m, down from £233m a year ago. The bigger question will be whether Close Brothers can convince investors it is on track for a better year next year.
Analysts are looking for profit to rise to £226m next year and AJ Bell’s investment director Russ Mould said they will “dig behind the headlines to see if the trends at the individual operations support that view”.