Close Brothers shares had been trading at their highest level to date, well ahead of their peak before the financial crisis, before slipping 52p to £16.10 after some respectable enough halfway figures. The comparison is not necessarily a fair one, because the pre-crash Close was a different business and recent growth has been based on the well-timed decision to build up its bank lending to SMEs just as other sources of such finance were drying up.
Nonetheless, there are some signs that growth is tapering off. The first half is the quieter one for lending, but a 3.2 per cent rise in the loan book compares with 4.5 per cent last time, while the level of bad debt, barely visible, will not improve further.
Inevitably, new challengers are being drawn into the market. Close says that it will not compete for lower-margin business, rightly so given its strong position in the market, but inevitably book growth last financial year of 14 per cent will moderate to 9 per cent to 10 per cent this one. That is healthy enough and can continue to support the dividend increases over the past five years.
Close’s other two divisions are less impressive. Asset management, though now profitable, will be a slow-grower, even if changes in the market, such as pensions freedom, will be beneficial enough. Winterflood, the equities trading side, is cyclical and does best when punters are buying AIM and small-cap stocks, which they are not at present. The broker has been increasing trade in European large caps, mainly French and Belgian, but this is much lower-margin. Take out the effects of the sale of its stake in Euroclear and Winterflood’s profits halved, from an admittedly strong performance last time.
Close pre-tax profits came in well in line with expectations, up 16 per cent to £106.2 million, because of the strength of that banking business. The dividend is raised from 16½p to 18p.
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The recent share price rise, though, has modified the support given to the shares by the yield, 3.6 per cent at this level, while they sell on a chunky 14 times earnings. The Close story long term is intact, but had I been in since last summer, when they were little above £12, I would be inclined to take some profits now.
Loan book £5.5bn
Dividend 18p
MY ADVICE Take profits
WHY Bank is well positioned and does not have to chase low-margin business, but the shares may not have much further to go short term
André Lacroix is leaving Inchcape on an undeniably high note. In 2009 the car dealer, in all sorts of trouble, launched a deeply discounted and highly dilutive nine-for-one rights issue to raise £232 million. Its market cap at present, after a sharp surge on the back of 2014 figures yesterday, is about £3.5 billion.
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The company has done all this by building a global footprint of high-marque dealerships. The replacement for Mr Lacroix is, significantly, an executive with Bacardi and is skilled at marketing luxury brands globally.
Inchcape is so flush with cash, and lacking in further opportunities to expand that footprint sensibly, that it has launched two £100 million share buyback programmes, one still running. It has also identified five territories that offer attractive organic growth; fortunately, these account for 75 per cent of operating profits. Singapore and Greece are busy replacing ageing car fleets; Hong Kong is doing the same with polluting commercial vehicles. In Australia, Inchcape is strongest in the booming New South Wales economy.
In Britain, not only did all car sales rise by nearly 10 per cent last year, but pressures on margins from dumping by continental makers are easing. Inchcape has had to write £47 million off its Russian business, but this is focused on high-value product that should remain resilient whatever happens.
Pre-tax profits before one-offs were up by more than 10 per cent to £303.2 million. On 15 times earnings for 2014, the shares, up 47p at 788p, still look like good long-term value.
Sales £6.7bn
Dividend 20.1p
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MY ADVICE Buy long term
WHY Global footprint and growth markets augur well
The revival of G4S is a long-term business and investors would do well to be patient. Ashley Almanza, the chief executive since the summer of 2013, reckons that there is at least another three years of cost-cutting to go.
G4S has sold or shut down businesses with revenues of more than £700 million since he has been on board, with low-par margins of little more than 2 per cent, raising £250 million. Now, he says, the main disposals and closures are over. However, the way the business has been run, with no centralised procurement and a raft of service suppliers, is still a long way from ideal.
The company’s revenues from continuing operations rose by nearly 4 per cent in 2014. This rate potentially could double, although this would require some return to growth within the UK, where most of the legacy of disasters took place and where a chunk of less attractive new business has been politely declined.
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G4S has the benefit, meanwhile, of North American and emerging markets that were up in revenue terms by 7 per cent and 9 per cent. The shares, off 5p at 286p, sell on 18 times earnings, which suggests little upwards potential for now.
Revenue £6.75bn
Dividend 5.82p
MY ADVICE Avoid for now
WHY Turnround looks like a long-term business
And finally . . .
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I have mentioned IP Group before, in the context of Allied Minds and Imperial Innovations, also businesses that take intellectual property developed by academics and push these to market. IP has a market cap of in excess of £1 billion and is raising another £128 million by issuing new shares. This will allow it to invest further in such technologies; there was a similar raising of cash a year ago. IP also issued results for 2014 that showed its portfolio of companies numbering 90, while net assets are worth more than £500 million.
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