Close Brothers Price Target (CBG) Downgraded by RBC Capital After YTD Rally

Close Brothers shares (LON:CBG) have fallen back below 500p today, down 3.8% as a downgrade from RBC Capital Markets hits sentiment. The analyst firm moved from “Outperform” to “Sector Perform,” despite maintaining a price target of 525p. The revision follows a substantial 120% surge in the company's share value since the start of the year, prompting valuation concerns.

The markets reacted to the adjustment, reflecting a period of recalibration after the stock's significant gains. While the price target remains neutral, the downgrade suggests a tempered outlook on further appreciation in the near term.

RBC Capital's decision is rooted in the stock's current trading level of 0.56 times the one-year forward tangible book value, a figure considerably lower than its historical average of 1.56 times. This suggests that the market may have already priced in much of the company's potential upside.

Furthermore, the recent UK Supreme Court ruling concerning motor finance commissions is a salient factor for the sector. Close Brothers has proactively allocated £165 million in provisions to address potential liabilities stemming from the ruling, aligning closely with RBC's projected impact of £170 million.

Looking ahead, RBC forecasts an adjusted return on tangible equity of 6% for fiscal year 2025, which is expected to decrease to 5.6% in 2026 before rebounding to 7.3% in 2027. Dividend payments are projected to resume in 2027 at 30p per share, translating to a 5.8% yield.

In related news, Close Brothers Group finalized the sale of Winterflood Securities to Marex Group plc for approximately £100 million in July. This divestiture aligns with the company's strategic objective to streamline operations and concentrate on its core business segments.