Source: Sharecast
The bank noted that the stock price has recently been impacted by concerns about further motor redress costs, adding to the slow to recover loan book, decline in income and profits, and higher restructuring charges.
"We think current valuations do not adequately reflect the recovery in return on tangible equity that we forecast (to a sustainable circa 9%), driven by business restructuring and cost savings efforts, and embed a higher risk of motor provision increases than we think is likely," UBS said.
"Our motor redress assumption is in line with the firm's current provision of £300m, fits well with the firm's lending share, and our CET1 forecasts leave room for absorption of some further charges if needed."
UBS pointed out the shares are trading at a discount to historical averages and sector multiples, partly explained by relative financial performance but it thinks overdone.
The bank added that its unchanged 555p price target implies more than 40% upside.
At 1605 GMT, the shares were up 2.3% at 393.60p.
Shares of Close Brothers tumbled last Monday after short-seller Viceroy Research 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 suggested that Close Brothers would have to "at least, double its existing provisions".
Viceroy, famous for its exposes on Wirecard and Home Reit, said Close Brothers had not fully provisioned for the redress because further provisions would breach CET1 regulatory capital restrictions and could create "an equity wipeout event".