RBC Capital downgrades Lloyds after shares hit price target
Lloyds Banking Group
54.60p
16:39 13/11/24
RBC Capital Markets downgraded Lloyds Banking Group on Friday to ‘sector perform’ from ‘outperform’ after the shares hit its 60p price target.
Banks
4,600.91
17:14 13/11/24
FTSE 100
8,030.33
17:15 13/11/24
FTSE 350
4,434.70
17:14 13/11/24
FTSE All-Share
4,392.88
16:44 13/11/24
RBC said that trading at around 1x 1 year-forward TBV, Lloyds now looks expensive relative to peers, and it believes that the re-rating story will be much tougher from here.
RBC said it was updating its estimates after the bank’s second-quarter results this week and maintaining the price target.
"We continue to feel that LLOY is a well-managed bank with favourable strategic positioning, but we have run out of runway in valuation terms," it said.
"We did not downgrade to underperform due to: (i) the strength of the bank's deposit franchise, (ii) the certainty of momentum provided by the structural hedge, and (iii) a relatively attractive total return yield."
RBC sees asymmetric risk to the downside in the event of a bad outcome from the Financial Conduct Authority’s review of motor finance.
"Pre-results consensus included circa £1.1bn in remediation charges for the issue versus our conservative base case of circa £2.5bn," it noted. "We expect that a soft outcome could represent a positive catalyst, but the reward is not worth the risk, in our view. There is also a high probability that September's announcement yields no clear outcome, with the can being kicked down the road, extending the period of uncertainty regarding this issue."