Lloyds Banking Group PLC shares are going nowhere, analyst says, while lender sees lender as salvage stock
The bank’s forecast “agrees with stronger headwinds beyond 2021”
PLC () shares are unlikely to go anywhere for a while, Berenberg analysts say, while UBS analysts say the lender is “a solid game for the UK recovery”.
The UK’s largest lender’s fourth quarter results this week were strong and were complemented by forecasts that “at first glance suggested weaker-than-expected headwinds due to asset revaluations and loan losses “wrote analyst Peter Richardson in a note to clients. .
Lloyds said he now expects the net interest margin, the difference between interest rates on loans and borrowings, to exceed 240 basis points for the current year, or 12 basis points. basis below 2020 level but 2 basis points above previous consensus expectations.
However, as the near-term outlook has improved, Richardson said he believes the bank’s forecast overall “is consistent with stronger headwinds beyond 2021.”
Indeed, soon-to-be-departed boss António Horta-Osório explained that the pressure on NIM in 2021 is expected to be weighted towards the second half of the year, which Berenberg’s analyst saw as implying a lower exit rate until ‘in 2022.
“While the outlook for return on capital has improved, we believe these headwinds will further limit the rise in the Lloyds share price,” the analyst said.
Berenberg believes that Lloyds’ focus on margins has caused the bank to shy away from the UK mortgage market, which, despite low margins, offers attractive returns.
“Lloyds continues to pay the cost of this past concentration, in our view, by continuing to grow less rapidly than its large UK peers during the current period of favorable loan volumes and pricing.
“Given this and the headwinds on consumer credit volumes (which Lloyds has focused on), we believe the bank’s growth outlook remains lower than its peers,” the analyst said. .
Berenberg kept his “conservation” rating on the shares and a target price of 39 pence, down from 39.34 pence at Wednesday’s closing price.
UBS analysts, meanwhile, felt that the 2021 forecast “significantly reduces the risks of the NIM outlook” and even involves consensus upgrades.
Viewing Lloyds as a “solid game for UK recovery,” analyst Jason Napier said Lloyds had strong mortgage momentum and a good pipeline “which we plan to pursue.”
The recent movements in the yield curve “are favorable to broader hedging at better rates,” Napier added, while seeing “a decent probability” that reversals of provisions will be observed in 2021/2, “reinforcing a potential for attractive organic dividend “.
With the departure of Horta-Osorio, new boss Charlie Nunn will likely conduct a strategic review upon his arrival, and UBS considers “the risks of a costly reset display these numbers as modest” and considers the risks around the outlook have decreased “significantly”. , reinforced by the announcement of the reopening of the government this week.