Proactive Investors - Lloyds will be the final major UK bank to provide investors with its full year results tomorrow, following on from HSBC which reported a fall in profits today.
Lloyds Banking Group PLC could pay out cash worth more than 40% of their market caps in the coming few years, analysts at Barclays said, as it assessed the sustainability of the recent step-up in the UK banking sector's profitability from higher interest rates.
Lloyds was upgraded as the analysts noted that UK banks have benefited from margins widening back towards historical norms and are also benefiting from substantial excess liquidity.
Lloyds is seen as “relatively better placed” to cope with the combination of the Bank of England carrying out ‘quantitative tightening’ following its rate hiking cycle and the escalating competition for customer deposits raises the prospect of deposit outflows at big banks.
This is due, the Barclays analysts said, to Lloyds having “greater reliance on retail savings”.
Deposit outflows have now been factored in, which if the rest of the City was to agree, could be worth up to 6% of 2025 consensus forecast EPS at Lloyds.
Lloyds was upgraded to an ‘overweight’ rating from ‘equal weight’, with a new price target of 75p, up from 55p, versus today's price of 51.2p.
The analysts said: “We see a more enduring tailwind from rising rates than previously and RoTE less impacted by excess liquidity/deposit outflows, alongside falling provision risks given UK macro de-risking.”
The Barclays analysts envision sector-leading capital returns for Lloyds, including that the lender will return around 45% of its £36bn market cap by 2025.
Lloyds’ valuation “appeals” at circa seven times 2023 estimated EPS, which it is noted is a discount to European banks at nearer 8 times