Investment Column: Close Brothers keeps up growth

Close Brothers, the merchant bank, has notched up its 22nd year of rising profits, announcing a 23 per cent increase in earnings to pounds 55.4m for the year to July. But can shareholders count on a 23rd year?

Close Brothers claims that its broad breadth of businesses means that a downturn in any one of its sectors will not wreak havoc on profits. However some analysts reckon the group relies heavily on the market-makers Winterflood Securities and the ex-Hill Samuel corporate finance team it bought from Lloyds TSB last year.

Though both Winterflood and the corporate finance unit have had a great year, this may not be sustainable. The fortunes of Winterflood are inextricably tied to stock market activity. Last year there was plenty of activity in smaller stocks and Winterflood boomed, but trading is notoriously fickle. The jury is also out on the corporate finance team.

On current analysts' forecasts the shares, which edged up 2.5p yesterday to 482.5p, near their all-time high, are sitting on a prospective p/e ratio of around 15. Given the inherent risks associated with the stock, that looks high enough.