Insider: bosses bet big on turnaround play and 'AI winner'

A relief rally for Close Brothers Group (LSE:CBG) shares included dealings by two of its directors after the banking group said the likely cost of motor finance redress can be “comfortably absorbed”.

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Their investments worth a combined £70,000 took place on Wednesday at prices between 449p and 455p, which compared with 389p prior to that day’s disclosure of an estimated £320 million hit in relation to the Financial Conduct Authority’s (FCA) proposed compensation scheme.

The assessment, which remains subject to potential further legal, regulatory or industry intervention, is broadly in line with the company’s current provision of £294 million.

Close, which has pledged to review the reinstatement of dividends once there is clarity on the redress scheme, said the figure left it well positioned to continue the delivery of its strategy.

The turnaround plan by the FTSE 250-listed firm includes a move into larger build-to-sell loans and additional asset classes such as build-to-rent and purpose-built student accommodation.

It has also expanded distribution in motor finance through growth in the Irish market, as well as with larger partners and brokers. Other parts of the strategy have involved a renewed focus on growing its commercial lines business in premium finance.

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Chief executive Mike Morgan said in the recent annual report: “We have tackled legacy issues head-on, reshaped the portfolio, and shown that we can take decisive actions quickly, even while navigating the uncertainty around motor commissions.”

Morgan’s key objective is a double-digit return on tangible equity (RoTE) by the 2028 financial year. The figure for 2024/25 fell to 7.1% from 9.3%, reflecting a combination of historical complexity, elevated costs and the impact of recent events.

It said last week that about 720,000 UK regulated motor finance loans written between 6 April 2007 and 1 November 2024 qualify for redress under the FCA proposed scheme. The expected  take-up rate is 75%, while the delivery cost of the scheme is about £66 million.

An average redress payment of about £500 per customer is lower than the industry average of £829 quoted in the FCA policy statement, reflecting the relatively smaller loan sizes and lower commission levels of Close Brothers' motor finance loan book.

The estimates are set to reduce the company’s capital buffer ratio to 14%, which is still well above the management's 12-13% target and the 9.7% regulatory minimum.

UBS said this should be taken positively in light of last week’s much larger provision top-up by FirstRand and the warnings issued in a report by short-seller Viceroy Research.

The outcome remains subject to take-up assumptions and additional costs, but the City firm said it saw no reason to change its stance after last month upgrading its recommendation on Close shares to Buy with a price target of 555p.

It added: “While we cannot rule out further (likely modest) provision requirements, our focus is on the likely trajectory for CBG's valuation as the market assigns lower downside risks to motor provision costs and as the franchise returns to growth and positive operating leverage.”

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However, Shore Capital downgraded from Buy to Hold following a 33% rise for shares since they traded at 345p in mid-March.

It said that underlying operational performance remains weak and that significant execution will be required for the group to deliver its double-digit RoTE target, which the bank views as stretching.

Shore said it would reconsider this stance if shares were to fall back below 400p or the group demonstrated a meaningful improvement in underlying performance. The shares finished the week at about 419.6p.

Senior independent director Mark Pain, who joined the board in January 2021, disclosed £40,000 of purchases at an average price of 449p.

Fellow non-executive Sally Williams, who has been a board member since January 2020, spent £31,500 at 455.3p.

A five-star trade

A £100,000 purchase of Trustpilot Group (LSE:TRST) shares involving chief executive Adrian Blair has grown £11,000 in value after the consumer reviews platform led the FTSE 250 index on Friday.

The investment on 2 April, which was disclosed to the market at the start of the last week, took place at an average price of 203.4p.

The shares traded as high as 229.6p on Friday afternoon after JP Morgan described Trustpilot as a clear AI winner with the potential to compound earnings and free cash flow at well above average-sector rates.

The City bank’s endorsement followed a Buy recommendation by Panmure Liberum, which said recent disclosures by Trustpilot had boosted its confidence in the medium-term story.

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Blair told investors in last month’s annual results that the company had clear momentum after adjusted earnings rose by 69% to $40.7 million on underlying revenue growth of 20%.

He added: “We have seen a dramatic rise in the visibility of Trustpilot in AI models, given the immense scale, recency and authenticity of the feedback we host.

“By integrating AI-powered innovation and optimising for large language models, we are not just participating in this new era - we are helping drive it.”

The shares bounced from 176p following the results, having recovered from the low of 129p seen after December’s critical report by a US-based short selling firm.