Broker tips: Close Brothers, Atalaya Mining

(Sharecast News) - Shore Capital upgraded Close Brothers on Friday to 'buy' from 'hold' as it said a recent selloff on the back of a research note by Viceroy was overdone. "Close Brothers' shares have fallen sharply in recent days following the publication of a critical Viceroy report alleging that the group has materially understated its motor-finance commission liabilities," the broker noted. "Management has strongly refuted these claims, arguing that the analysis relies on exaggerated and unfounded assumptions. In our view, the resulting sell-off looks overdone, and we therefore upgrade our recommendation."

Close Brothers tumbled on Monday after Viceroy said the company had "systematically misrepresented" its exposure to the car finance scandal. Viceroy said in a research note that examination of the Financial Conduct Authority's redress scheme suggests that Close Brothers will have to "at least, double its existing provisions". Viceroy said Close Brothers' redress exposure ranges from £572m to £1.2bn, which is well above its current provision of £300m.

Close Brothers responded by saying that it "strongly disagrees" with the Viceroy report. The company said its provisioning approach in relation to motor finance commissions and the resulting impact on its capital position was "in accordance with UK-adopted international accounting standards and follows a robust governance process".

Shore Capital argued that the Viceroy report "significantly exaggerates" redress risks, noting that management has firmly rejected its assumptions. "At today's valuation, we think the shares more than compensate for remaining regulatory uncertainty, offering significant upside if the FCA outcome aligns closer to management's view than Viceroy's severe scenarios," it said.

A day after the research note was published, Close Brothers reported a narrowing of its first-half losses and said it was planning to cut around 600 jobs by the end of financial 2027 as it accelerates its cost-cutting programme. Shore Capital, which cut its price target on the stock to 490p from 510p, said Close Brothers delivered a "slightly disappointing" H1, with the loan book contracting 2% to £9.2bn and adjusted operating profit falling to £65.2m from £80.5m as lower average balances weighed on income despite a resilient 7.1% NIM.

Analysts at Berenberg lowered their target price on copper giant Atalaya Mining from 1,270p to 1,210p on Friday, but said it was "still feeling constructive" despite "hard markets".

Berenberg acknowledged that global equity markets were "in a challenging place", with "significant volatility" being brought on by ongoing Middle East tensions and market worries about rising inflation as oil prices continue to trend higher. It said the knock-on worries on the impact of inflation and heightened geopolitical tensions on global growth has "undoubtedly knocked copper sentiment", with copper prices linked to expectations of global growth.

Over the past month, copper has fallen by 5% and while Berenberg still remains constructive on the copper price and the outlook for it as a metal from a supply and demand basis, negative sentiment has sent the price lower - dragging equities, such as Atalaya, lower with it.

"In our view, the shares sold off for three main reasons: first, the copper price was lower, so it had macro headwinds against it; second, it flagged a soft Q1 2026 due to rain in Spain, which has created some market worries around guidance (even though it was maintained); and third, and probably most importantly, there was no new news on Proyecto Touro, which is Atalaya's key growth project in Spain," said Berenberg.

The German bank, which has a 'buy' rating on the stock, reiterated that Atalaya's Proyecto Touro remaned "key" and update its model for the firm's recent Q4 results and new cost and capital expenditure guidance.

"We have also made some adjustments to our strip ratios, which moves EPS estimates and lifts our medium-term capex. This results in a price target of 1,210p per share. We see clear catalysts to drive a re-rating; the shares are trading on 1x NAV and 3.1x 2026E EBITDA," added Berenberg.