Lloyds Banking Group PLC (LON:LLOY) shares received a leg up today after Jefferies reiterated a ‘buy’ rating and raised the target price to 87p from 86p, citing potential growth in dividends and earnings.
The bank released company-compiled consensus forecasts for 2017 yesterday, which raised expectations for underlying profit by 6% compared to estimates in April. The upgrade was driven by an expected 16% reduction in impairment charges and a 2% increase in estimated revenue.
“These movements form a large part of our investment thesis on Lloyds - that is impairment normalisation shall be attenuated and revenues can surprise due to higher net interest margins (consensus revisions to FY17 net interest margin =15 basis points to 2.82%) and an inflection in the multi-year erosion in the interest earning asset base,” Jefferies said.
“All of this leads to materially higher estimates for underlying profit and earnings per share.”
Jefferies said its 2017 underlying profit forecast is 7% above consensus, due to lower impairment.
The broker also sees potential total shareholder returns of 9% in 2017, including an ordinary dividend of 3.5p at a yield of 5.4% as well as a £1.7bn share buyback. The potential for a share buyback and special dividend makes Lloyds an "attractive yield play", Jefferies said.
Shares rose 0.7% to 66p in late afternoon trading.
--Updates for share price--