Lloyds Banking Group PLC (LSE:LLOY) slipped 1.0% after broker Jefferies cut earnings estimates and slashed its price target for the UK’s largest mortgage lender.
The broker has made material cuts to net interest income forecast on expectations for lower net interest margin (NIM), higher deposit churn and lower base rate benefits with the favourable tailwind from structural hedge income not set to be a full offset until the third quarter of 2024.
It expects NIM to trough in the first quarter of 2024 at 301 basis points (3.01%).
But while the bank has cut 2023-25 earnings by an average of 10%, it maintains forecasts for £7.5 billion of cumulative buybacks over this period.
It is the scale of the share buy-backs – around 26% of the bank’s market value – and 14-15% return on total equity that sustains value creation, in Jefferies view.
But given recent industry trends and the company’s own experience, notably in the third quarter, the broker has cut its NIM forecasts by 4bps for 2023 and 26bps for 2024, followed by 12bps in 2025.
Jefferies keeps a ‘buy’ rating on Lloyds but has slashed its price target to 62p from 80p.