Lloyds Banking Group PLC (LON:LLOY) should announce a robust fourth quarter performance, a confident outlook and a share buyback at its full year results in February, according to Credit Suisse.
Credit Suisse repeated an ‘outperform’ rating and raised its target price to 85p from 80p ahead of the bank’s 2018-2020 strategy update to be announced with the 2017 results on February 21.
It now expects Lloyds to unveil a £1bn buyback instead of a 1.5p special dividend for 2017, as previously anticipated.
READ: Lloyds and Barclays to lift capital returns in 2018, Deutsche Bank expects
The financial service firm estimates Lloyds could return £15bn or 30% of its market capitalisation between 2018 and 2020, relative to a common equity tier 1 ratio – a measure of capital strength – of 14%.
Credit Suisse said a “superior” CET1 capital generation of about 650 basis points will allow for greater returns.
Lloyds expected to tweak ROTE target
The lender's return on tangible equity (ROTE) target for 2019 is 13.5% to 15%, based on a CET1 ratio of 13%.
But Credit Suisse expects Lloyds to tweak this target since the CET1 ratio is now likely to be around 14% following its performance in the recent Bank of England stress tests.
READ: Lloyds, RBS, Barclays and HSBC can handle Brexit risks, Bank of England's stress test reveal
Lloyds will also probably focus on its digital improvement programme as it closes down branches in response to more people switching to online banking, Credit Suisse said.
READ: Lloyds to close a further 49 branches as more customers turn to online banking
NIM to remain stable
The net interest margin is forecast to reach 2.9% in the fourth quarter, in line with the third quarter and management's guidance.
“We are more confident in management’s ability to maintain NIM at this level and expect confirmation of this for 2018 (vs consensus 2.88%),” Credit Suisse said.
Risks facing the bank include higher capital requirements, a weaker UK economy and Brexit related uncertainty, it added.
Shares in Lloyds were little changed at 69.9p in morning trade.