Member Info for SG2025

@klishen, you are right re P/NAV is currently around 0.25-0.3x. Its all because of the motor financing overhang. Analysts have modelled anywhere between 100m-1bn as possible remediation cost, depending on SC outcome. The stock has historically traded above 1-1.5x NAV, and around 0.8x NAV in 2023 with Novitas overhang. So, if the SC outcome is balanced, the stock should recover accordingly. Company does have sufficient buffers to withstand significant remediation cost, but its the uncertainty of the worst case scenario that is keeping a very big overhang on SP. IMO, the SC outcome could dictate the fair value to 2-4x of current SP, or to 0.5x for the worst case scenario.. This is not my prediction on SP movements, but views on the fair valuation, which even the broader analysts model depending based on several scenarios..

On a more positive aspect, keen to see the price impact on FTSE 250 entry which becomes effective on Monday morning. This would imply the passive index tracking funds will need to adjust their holdings (i.e. buy CBG) at or near auction on Friday close. Given CBG is also part of FTSE All-share, incremental demand for FTSE 250 tracking is not very significant, but usually around 1% of shares o/s, so expect a buy order of approx 1.5m shares just from index - average trading volumes in a day are around 0.5-1.5m shares.

'Don't forget earnings are being hit due to possible loaners shunning Close due to its tarnished reputation'

I see it as an uneducated speculation by someone who has not even bothered to glance at the earnings press release or spent anytime to listen to management presentation and Q&A.

I may be wrong but I have a feeling that a number of members on the forum really don't fully understand CBG's business model. For example - "...desperate for cash right now to fund claims payouts", It doesn't work like that !!!! If CBG has to payout remediation claims, they can not simply borrow more from depositors and use that to fund claims!! These are paid out of equity reserves and they need to maintain equity ratios to deposits/lendings for regulatory thresholds.

The fact that their ISA rates are higher than others, reflects two aspects - 1) they need to pay more to attract deposits which otherwise may not be easily available to them; 2) they are a specialist lenders and lend on higher rates to specialist areas of the market and can therefore afford to pay more on ISA rates. The fact that they have the highest ISA rates do not reflect good on them since this reduces their NIMs, which is what if you read analysts notes/commentary has been the key argument for institutional bears that their NIMs (a core performance parameter) has been shrinking over the last several quarters....

@stockpickfree. Thank you!!

@Stupmy, Noted and thanks again for your time and thoughts to share your wisdom.. I will give you a shout again in few days when I have absorbed some of the resources you have kindly shared.

@Scooter, good thing that the government has made its intention very clear not to go on a socialist overdrive with regards to compensation to damage the industry, which are also clear by FOS overhaul to stop ambulance chasing by claim companies.

Thanks @Stumpy. Much appreciated. There is so much stuff available on internet that its so easy to get lost, but this is useful. I dont want to swing/intra-day trading, but want to understand to better understand resistance/support levels and broader technical factors that may drive share price, so as not to fully give into the temptations /emotions to buy in early or sell early. I have lately come to realise painfully unfortunately that market does tend to materially overshoot or undershoot on fundamentals even if on a short to mid term and its predominantly technicals that drive that with the advent of Algos, which increasingly are being used by all major institutions/banks replacing human traders!!

@Liberty2, Fully concur with you and hoping for the best..

@Stumpy / others, I am keen to understand / build knowledge on technical analysis. Recent started a book by John Murphy that a friend recommended currently, but would welcome any suggestions. I have been a fundamental investor and want to build good knowledge of technicals to overlay sharp moves like todays's in CBG, so appreciate any useful resources. I quite like the podcast that you or someone shared on the forum...

I suggest we put this debate to rest. My intention is not to scare anyone,,,

I think everyone knows that the SP trajectory will be driven by a sensible SC outcome, and in many cases, RI is not as bad as people think. Incase the business is sound which CBG is, and its just a matter of temporary capital shortfall, RI makes a lot of sense and is good for SP. Only major downsides are short term volatility and somewhat limited upside based on quantum.

@Liberty2, Its the accounting/capital requirements that are set in stone by FCA/PRA for UK banks. They are required by law to make provisions and have sufficient capital buffers to wither any detoriation in economy to prevent any bank run/failures. There is also the fact that any bank with less than 10-11% CET1, is considered risky by lenders and various parties, and there are several other repurcussions which I go on about.

Anyhow, like I said these are all theoretical until we know SC outcome and there are more problems if SC outcome is untoward - am not counting on that.

@Stumpy, CBG never guided to 165. It was few analysts (UBS, RBC I think) who built their own calculations / scenarios and came up with 400m. CBG has only just guided for 165..

@Liberty2 - if their CET1 ration falls before 9.7%, there is a 300-350m buffer currently, the company can not wait for much time to build back the buffers through operations etc. They need to act immediately - as required by FCA. Every major bank do scenario testing for different macro scenarios (recession, slowdown etc.) on what to do if there are significant losses and their CET1 falls down below 10-11% and Rights issue is mostly built into it as a contingency. Anyhow, its a very theoretical debate at this point...

Just to finish from my last post, .... and for a certain amount of shortfall, a rights issue makes more sense than destroying an a lending book, which takes time to build and that market values.. anyhow, I know for a fact that the Company wouldn't do it anytime soon, and there are better things to worry about than a rights issue in any scenario. Rights issue will be the least of anyone's worry if they got to this worst case scenario,..

@Knot, it does in a doomsday/worst case scenario, when and IF!! SC sides with CoA decision and the provision increase to 800 from 165. You are emotionally invested in the stock - as am I (a lot), but I wouldn't rule it out as a possibility even if its 0.0001% just saying. Anyhow, its futile to debate about this point even remotely at this stage.

Once the SC decision is out, they will need to make provisioning fairly quickly within few days/weeks and FCA/PRA requirements of CET 1 ratio of above 9.7% would require an immediate equity injection and the securitisation process takes time, as do rights issue...

Not until they have the Supreme Court outcome, and also the size of any raise will depend on the final bill vs the provisioning and current capital buffers. There is no immediate need for capital as such and its quite difficult to explain to the market both the quantum and need for such a raise, when its not needed. Its the uncertainty of the court outcome thats depressing the share price more generally...

Think its all algo trading.. there have been similar sharp moves recently on a number of stocks post results, especially on down moves, no matter how good/bad the results were.. Melrose, Just Group, and many more!!!

(Alliance News) - Close Brothers PLC shares could drift ahead of a key court ruling while lower margin guidance and lacklustre volume growth will lead to material earnings downgrades, analysts on Tuesday said.

The London-based bank, broker and asset manager reported an operating pretax loss of GBP103.8 million in the six months to January 31 swung from a pretax profit of GBP87.0 million a year prior.

This was primarily driven by a GBP165 million provision in relation to motor finance commissions, announced in February, as well as the impact of complaints handling and other operational and legal costs incurred in relation to motor finance commissions.

In response, shares in Close Brothers plunged 22% to 270.40 pence each in London on Tuesday.

AJ Bell's Russ Mould suggested while Close Brothers has been in the motor finance business for more than 30 years it may be "rueing the day it ever got involved".

"The provision taken in February has tipped the company into a big loss and steered a recovering share price off course," he noted.

"Weak guidance on the key net interest margin metric will have done nothing to reassure shareholders on the long-term prospects for the business," he added.

In April, the Supreme Court is due to hear an appeal brought by car loan providers, including Close Brothers, challenging a ruling from the Court of Appeal that sided with consumers who complained about "secret" commissions on car loans.

Close Brothers said its goal is to ensure that, once the motor finance commissions uncertainty has been resolved, the group is "well positioned to generate strong, sustainable returns".

The company said the reinstatement of dividends will be reviewed once there is further clarity on the financial impact of motor finance commission arrangements and the Supreme Court appeals.

On an adjusted basis operating profit fell 18% to GBP72.3 million from GBP87.9 million. Operating income reduced 1.1% to GBP390.0 million from GBP394.5 million a year ago, with a marginal decline in Banking and lower interest income in Group central functions more than offsetting higher income in Winterflood.

RBC said the results were broadly in line with Visible Alpha consensus but "there is a lot of noise making it difficult to discern underlying trends."

The broker thinks Close Bothers has enough capital to "muddle through" the motor and premium finance issue but believes there is a risk that the shares drift until there is more clarity from the courts.

Close Brothers said its common equity tier 1 ratio fell to 12.2% at January 31 compared with 13.4% at July 31, despite the impact of the provision.

The return on average tangible equity was 7.4% compared to 9.9% while the net interest margin fell to 7.3% from 7.5%.

In Banking, the firm said it is encouraged by the robust underlying profit performance delivered in the first half and it plans to resume selective loan book growth, with modest growth expected in the second half of the 2025 financial

@Stumpy, "I'm hoping to buy at 247 or lower".. why 247 and why not 250 or any other number?