Broker tips: Close Brothers, Kooth

Analysts at Berenberg lowered their target price on financial services firm Close Brothers from 1,250.0p to 1,200.0p on Wednesday after the group's results underperformed UK banking rivals by roughly 8%.

Berenberg said Close Brothers' banking business continued to perform "strongly" in the six months ended 31 July, with 6% annualised loan growth.

However, weaker-than-expected costs, asset management and the performance of its Winterflood unit saw the group fall short of performances delivered by other UK banks.

"In our view, Close Brothers' strong banking growth outlook and ability to reprice lending to offset rising funding costs support an attractive through-the-cycle outlook," said Berenberg, which reiterated its 'buy' rating on the stock.

"Trading on 5.7x our FY 2024E EPS – a 45% discount to the long-run average – we believe this strength is undervalued."

The German bank also reduced its near-term earnings per share estimates by 7% and outer-year EPS by 2%, largely due to lower Winterflood and asset-management operating profits.

Analysts at Canaccord Genuity downgraded digital mental health and wellbeing company Kooth from 'buy' to 'speculative buy' on Wednesday and slashed their target price on the stock from 380.0p to 240.0p, citing "lots of moving parts" in its investment case.

Canaccord Genuity pointed to the, hopefully, temporary slowdown in UK growth from ICS consolidation and continued modest cash burn from the ramp-up in US investment as concerns but did note that this had been somewhat countered by the potential for accelerating growth from the US - which management estimate offers a $26.0bn market opportunity.

However, although the Canadian bank stated that Kooth establishes the scale and readiness of the opportunity in the US, it had opted to lower its recommendation due to "evolving market dynamics".

"Having built the foundations in the US over the past year, Kooth has secured its first major contract win with the State of Pennsylvania. The 1-year pilot, worth $3m, will see the delivery of its platform to 30 school districts, with the opportunity to expand to >500 districts if successful," said Canaccord.

"This will be dependent on Kooth delivering against therapeutic and economic outcomes, with the first indications of this likely to be in spring 2023. We believe this will be key in establishing credibility within the US, and in converting future opportunities, where we understand Kooth is building a healthy pipeline with State Gov/Medicaid providers."

Reporting by Iain Gilbert at Sharecast.com