Bank results in the recent third quarter season were a mixed bag, says Shore Capital, but still good enough for the broker to retain buy recommendations across the sector.
Good news on credit quality was offset by some disappointment on net interest margin and outlooks were a little more cautious than expected prompting ShoreCap to trim forecasts.
Even so, the broker still expects the sector to produce a 12% return on tangible equity which it argues is still not reflected in current price to net asset values of around 0.7 times.
Credit quality remains a bright spot for the sector and, while there is some evidence that arrears are creeping higher, this is coming from a low base.
Capital positions remain robust with CET1 ratios either within or above the target ranges set by management teams.
Upside to fair values/target prices ranges from 47% to 109% with Shorecap’s order of preference: Barclays; Virgin Money; Standard Chartered; NatWest; Lloyds and HSBC.