UPDATE 1-Close Brothers expects IPO activity to boost securities business

Tue Sep 24, 2013 7:38am EDT

Sept 24 (Reuters) - Financial services company Close Brothers Group Plc reported a 24 percent rise in adjusted operating profit and said it expected increased market activity to boost its securities business.

Adjusted operating profit at the company's securities unit, which has two divisions Winterflood and Seydler, rose 5 percent to 25.7 million pounds ($41.2 million) in the year ended July 31.

The company said IPO activity in the UK last year was well below pre-financial crisis levels and new money raised on AIM, which generates higher margin trades for Winterflood, continued to be at historically low levels.

"In August, market volumes across the board in equities on the London Stock Exchange were up 10 percent and AIM market volumes were up 24 percent. We are very well positioned to capitalise on the opportunity which have been there in August and September," Chief Executive Preben Prebensen told Reuters.

The jump in volumes on AIM followed the implementation of a government plan in early August to let people invest in small firms while avoiding tax to help drive economic recovery.

Winterflood, which offers trading services to institutional investors, accounted for about 66 percent of the securities unit's profit.

Adjusted operating profit at Seydler, which offers equity and debt capital market services mainly to mid-sized companies in Germany, jumped to 7.9 million pounds from 1.3 million pounds a year earlier.

"The securities business had a relatively good second half. This business has been very cyclically challenged, being heavily exposed to UK retail business and to AIM," BofA Merrill Lynch analyst Philip Middleton said in a note.

Close Brothers' full-year adjusted operating profit rose 24 percent to 166.5 million pounds as lending at its core banking unit increased and the asset management business returned to profit.

Operating margin of the asset management business, which recently concluded a four-year restructuring programme, was 5 percent. Operating margin in this business is expected to rise to 15 percent by 2015, CEO Prebensen said.

"The asset management and securities business remain geared to any sustained market recovery. The group's ROE (return on equity) of 15.8 percent compares well with the big banks," Panmure Gordon analysts George O'Connor and Adam Lawson said in a note to clients.

The asset management unit swung to an adjusted full-year operating profit of 4.0 million pounds from a loss of 4.3 million pounds.

Core banking adjusted operating profit increased 17 percent to 157.8 million pounds.

The company said it would pay a final dividend of 29.5 pence per share for the period, higher than the 27.5 pence paid in the previous year.

Shares in the British company were up 2.7 percent at 1163 pence at 1126 GMT on the London Stock Exchange.

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