HSBC has shifted its price targets for Lloyds Banking Group PLC (LON:LLOY) and Barclays PLC (LON:BARC) in a sweeping review of the banking sector.
Analysts at the bank’s London arm downgraded its outlook for the sector last October, claiming that investors were too optimistic.
Bank shares have underperformed the market by 10% since then though, leading HSBC’s global head of banks equity research, Chris Mallin, to conclude that investors might now be too pessimistic.
Analyst Robin Down has Barclays as his “most preferred UK bank play”, claiming that a little “self-help” should see return on tangible equity improve through 2018 and 2019, although he notes this is yet to be reflected in valuations.
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Down has concerns over the UK retail banking market, but reckons Barclays will be “largely unaffected” in the near-term by these.
Mallin upped his price target for the stock to 260p (from 240p) and repeated his ‘buy’ recommendation.
The analyst is less optimistic about Lloyds, whose target price he dropped slightly to 70p (from 72p), although he did keep his ‘hold’ rating in place.
Mallin notes that Lloyds is trading on a relatively high costs of capital (13.9%) compared to its peers.
Barclays shares are up 1.5% this morning to 196p, while Lloyds has gained 1.2% to 62.3p.