The share price of Lloyds Banking (LON:LLOY) is pricing in a lot of bad news, reckons Deutsche Bank, which remains a fan of the lender.
The shares are trading almost 40% below their 2015 peak and at about the same level as in July 2013, when the government's stake of 39% was like a lead weight on the share price and the company was not, at the time, paying any dividends.
Stated earnings have disappointed, driven by non-operating items which cost 15p of tangible net asset value (TNAV) over a three year period, while the tax rate will be higher from 2016, and despite strengthening the core tier 1 (CET1) ratio – a measure of balance sheet strength - considerably, dividend expectations have been delayed.
“However, we think there is light at the end of the tunnel: 2016 should be the last year of significant below-the-line charges, we think Lloyds’ CET1 is now above 2019 requirements with high pay-out ratios/buy-backs closer, and we believe margin fears are overstated,” Deutsche Bank said.
Nevertheless, it has cut the price target to 83p from 91p, though it sticks with its 'buy' rating.
Elsewhere in the financial sector, Barclays has named Aviva (LON:AV.) at its top pick within the European insurance sector.
It believes the implementation of the Solvency II (Sol 2) EU directive, which will require insurers to shore up their capital bases to reduce the risk of insolvency, will be a potential catalyst for the stock.
“We estimate that Aviva's Sol 2 ratio will be 166%, only modestly below its Q3 economic capital ratio of 172%. While the ratio itself may be lower than some of its European peers, our analysis suggests the sensitivity of the ratio to stresses will also be lower. In our view, it is the level of Solvency in stress environments that is the most important test of capital strength,” Barclays said.
“We believe 166% will be a comfortable level of capital and allow Aviva to return any capital synergies from its acquisition of Friends Life to shareholders,” Barclays added, as it revised its price target of 627p up to 663p, while sticking to its “overweight” rating.
The similarly named Aveva (LON:AV.), the software company, has been downgraded to 'sell' from 'neutral' by Goldman Sachs.
The engineering data software specialist's acquisition of Schneider Electric's industrial software assets fell through late last year.
JP Morgan Cazenove has turned gloomier on a parcel of oil-related stocks.
Amec Foster Wheeler (LON:AMFW), which parted company with its chief executive this week, sees its price target clipped to 605p from 739p.
Its peers in the oil field support services sector, Hunting and Petrofac also get the treatment from Caz.
Hunting's (LON:HTG) price target is slashed to 263p from 338p, while Petrofac's (LON:PFC) target price has 30p lopped from it at 978p.