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Lloyds upgraded, Barclays solid and Natwest OK, broker suggests after quarterlies

Published 29/04/2024, 13:37
© Reuters.  Lloyds upgraded, Barclays solid and Natwest OK, broker suggests after quarterlies

Proactive Investors - Britain’s big three top banks acquitted themselves pretty well in the quarterly updates last week, according to broker KBW.

Mortgages were an issue for all of Lloyds Natwest (LON:NWG) and Barclays (LON:BARC) as lenders battled for market share in a fiercely competitive market.

Interest margins also dropped, but overall KBW views all three banks in good shape as the credit cycle turns down again.

By individual bank, Barclays delivered "a remarkably solid set of results", says KBW.

“CIB [commercial, investment bank] revenue will do what it does, but importantly they delivered in-line cost performance despite absorbing £120m of Bank of England levy not in consensus, and the bottom line earnings number was not reliant on “funny money” impairment model assumption changes.

“A bank trading on consensus PE25e 5.1 times and price to book of 0.5x should be a key focus of market attention.”

Outperform with a target price of 230p is KBW’s view.

Lloyds Banking (LON:LLOY) benefited from a big beat on impairments, adds KBW, and credit remains benign while weakness in NIM and volumes will reverse over the remainder of 2024.

“We, therefore, make only modest changes to our forecasts and remain comfortable with LLOY generating an adjusted ROTE of 13% this year and next (ex. motor finance).

“Against that backdrop, a consensus PE for 2025 of 6.8 times and price to book [PTBV24e] of one times feels far from demanding."

KBW reiterated its 'outperform' rating but raised its target price to 65p from 60p.

NatWest Group is KBW’s least favourite of the three that reported last week with a market perform rating and target of 275p.

Quarterly numbers were respectable, adds the broker, with adjusted profits exactly in line with consensus at £1.27 billion.

“Perhaps surprising that they have not increased £13.0-£13.5bn revenue guidance, which was based on five second-half rate cuts, despite increasing cost guidance, but we believe that is more to do with administration than operating performance.

“NatWest shares trade on consensus PE for 25e 6.9x and PTBV24e 0.9x.

“We like the UK banks where valuations still feel undemanding for a sector that has dispensed with credit cycles, although prefer Lloyds.”

HSBC (LON:HSBA) will make up the quartet when it reports later this week.

Read more on Proactive Investors UK


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