Why are Lloyds shares rising?
UK’s third largest bank saw its shares hit a five-month high after Barclays named it as one of the top banking stocks to watch.
- Lloyds (LON: LLOY) share price rallied to 49p on Wednesday (13 October)
- The stock was named as one of Barclays top banking sector picks last week
- Analysts envision a further 11% price upside
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Lloyds stock analysis: what’s the latest?
Lloyds shares have gone up 3% since Barclays and Bank of America (BoA) analysts named the stock as one of their preferred UK banking picks.
Barclays analysts wrote that compared to Spanish and German banks, UK banks are more likely to outperform, as they were better positioned to tackle potential risks and pressures on their net interest margins, volume suppression and cost inflation.
Lloyds, in particular, was expected to perform strongly thanks to its higher profitability and ‘ample’ capital buffer.
Meanwhile, BoA brokers stayed ‘overweight’ on European banks, citing expectations for higher bond yields and an easing in cross-border travel restrictions as key positive catalysts.
Across the board, consensus ratings from research teams were largely bullish, with 16 ‘buy’, eight ‘hold’, and two ‘sell’ recommendations as of last week. Their average target price for LLOY shares stood at 53.62 pence, Bloomberg data showed.
Those with recent ‘neutral’ or ‘hold’ ratings also included Berenberg, Goldman Sachs, and BNP Paribas, with price targets of 48p, 49p, and 54p respectively.
Lloyds has ‘unique scale advantage’ over rivals
Elsewhere, JPMorgan rated LLOY ‘overweight’ with a 60p price target, stating that the stock may offer the highest upside among UK banks.
Despite a weakening mortgage market, the British financial institution’s top-line recovery remains on track, in JPMorgan’s view, driven by the yield curve and consumer recovery.
One of the strategic challenges facing the lender and incumbents is the growth of new digital banks in the country with technology that also leverages open banking.
‘However, Lloyds retains a unique scale advantage over most other UK retail banks due to its leading market share,’ the analysts noted.
They continued to see value in Lloyds’ branch network ‘as long as it is used effectively to service complex needs and offer advice, driving growth in fees and increased share in wealth and pensions’.
Bloomberg Intelligence (BI) wrote that the contribution of UK retail and corporate net-interest income ‘has been a source of pain for many years’ for Lloyds and its peers. This was exacerbated by the 2020 rate cuts.
However, the ‘plunging credit-card balances, a spike in savings, and a net interest margin (NIM) slide look set to stabilise from 3Q’, BI said.
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