Proactive Investors - Lloyds Banking Group PLC (LON:LLOY) could show investors close to 60% upside, that’s according to analysts at Jefferies, who say the UK banking share is “quality at a reasonable price”.
Jefferies pitches its ‘buy’ recommendation with a price target of 75p, versus today’s market price of around 48p.
Amidst tighter economics for consumers, but, also higher interest rates the UK’s ‘number 1’ high street bank is set to generate more income going forward, and, according to Jefferies, that’s something that investors have yet to properly price in.
“We expect the estimated 17% RoTE (Return on Tangible Equity) to be more appreciated by the market over the coming 12 months, offering a material re-rating potential on the current price-to-TBV (tangible book value) multiple of 0.8x,” Jefferies banking analyst Flora Bocahut said in a note.
“Rising net interest margins (from 292bps in FY22E to 329bps by FY24E) and positive operating leverage (cost income ratio falls from 50% in FY22E to 46% in FY24E) balance by more normal credit costs explain the 430 basis point improvement in RoTE to 17% by FY24E.”
Jefferies sees Lloyds beating current market consensus in multiple metrics – forecasting FY24 net interest income some 8% ahead of consensus, estimating £6bn of share buy-backs is 30% above what the rest of the market predicts, and altogether it sees Lloyds earnings per share for FY24 some 33% above consensus at 11p per share.
Bocahut reckons Lloyds will ‘drive sector Alpha’ (aka provide greater returns above benchmark levels) in the sector, which is a notably strong view given that Jefferies is broadly bullish above the banking sector as it is.
The big banks are priced for recession yet earnings momentum remains strong, costs are under control and Jefferies says there’s limited asset quality risk (after nearly a decade and a half of regulatory constraint and extensive stress-testing post golbal financial crisis).
Significantly, Jefferies describes the banks as having “best in class” capital returns across the whole market presently with the median yield coming in at around 8% per year for 2022 through 2024.
In today’s sector write-up, Lloyds was named among Jefferies ‘top picks’ among the banks with Asia-focussed HSBC (LON:HSBA) the other notable London-listed name on the list.
Its ‘buy’ for HSBC has a price target pitched at 770p, equating to 42% upside to the current price of 552.3p.
A number of European banks similarly saw upbeat forecasting including Italy’s BPER Banca (tipped for 87% upside to a €3.80 target) and UniCredit (LON:0RLS) (€19, suggesting 33% upside), France bank’s Société Générale (€40 target, 59% upside) and BNP Paribas (EPA:BNPP) (€77 target, 35% upside), Dutch bank ING Group (€16.20, 33% upside) and Switzerland’s UBS Group (CHF 23, 28% upside).