Analysts at UBS are positive about Lloyds Banking Group Plc’s (LON:LLOY) earnings, with the Swiss investment bank is upgrading its forecasts and repeats a ‘buy’ recommendation for the FTSE 100 share.
There are three factors to UBS upbeat view.
Analyst Jason Napier says the UK economy continues to outperform and as a result UBS cuts its expectations for loan losses; the acquisition of MBNA incorporates some 5.7% underlying profit accretion to Lloyds; and it expects more resilient interest margins.
Brexit meanwhile described as a ‘sentiment risk’, but Napier says it is a factor that has to be respected.
“As Britain prepares to invoke Article 50 to begin the process of negotiating its exit from the EU it seems right to assume that sentiment, and perhaps Sterling too, will be volatile,” he added.
“As things stand, however, consensus EPS for this bank is much too low and the payout potential too strong to ignore in our view.
“Though we do expect housing and commercial real estate markets to slow, we view the credit quality of the bank as sound, with earnings power defended by significant potential to further reduce deposit and branch distribution costs.”
UBS estimate for Lloyds earnings has been increased to 9%, and it’s ‘buy’ recommendation comes with a 75p price target suggesting some 15% upside.