UK banks continue to trade well below their low-term ratings, according to analysts at KBW, which makes them attractive currently especially Lloyds Banking Group PLC (LSE:LLOY) and Barclays PLC (LSE:BARC).
Overall UK banking data remains benign, adds the Stifel-owned broker, but UK volumes remain anaemic and non-interest bearing inflation looks under control; GDP growth revisions remain positive and initial indications from the first interest rate cut suggest a pass-through of 50% on both assets and liabilities
Elsewhere, initial indications are that market volatility over the summer has been positive for trading revenues, though HSBC and Standard Chartered might have a currency headwind.
Overall, KBW concludes that “UK banks continue to trade on only.7x consensus FY25 earnings, which remains a material discount to the long-term average 8.5 times at a time in the cycle when they might be expected to trade at or above”.
With UK margins set to grow into next year as hedge tailwinds peak, remain positive, it adds.