Analysts have weighed in on Lloyds Banking Group (LON:LLOY), as the lender passed the latest Bank of England’s (BoE) health check. Exane BNP Paribas, however, sees the bailed-out bank’s performance as ‘borderline’.
Lloyds’ share price has jumped in London this morning, having added 2.28 percent to 66.31p as of 10:23 GMT. The stock is outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.54 percent lower at 7,420.54 points. The group’s shares have added more than 14 percent to their value over the past year, and are up by some six percent in the year-to-date.
Analysts weigh in on stress test
WebFG News quoted analysts at Exane BNP Paribas as commenting yesterday that the BoE’s stress tests were ‘somewhat negative’ for the UK-listed domestic banks, warning it raised “questions over the speed to dividend normalisation”.
Lloyds in particular was felt to be ‘borderline’, albeit it did markedly better in 2016 when it only lost 250bps, so Exane noted that this ‘might reduce the prospect of a buffer’.
Russ Mould, AJ Bell Investment Director warned that while major lenders were much better placed to withstand the next financial downturn, investors should be aware that the stress tests assume that banks would slash their dividends in 2018 to preserve cash. Proactive Investors quoted him as saying that it seemed unlikely cutting dividends would be welcomed by “income-hungry portfolio builders, especially as the 6%-plus dividend yield on offer from Lloyds”.
Interactive Investors meanwhile quoted Investec’s Ian Gordon as sticking by his forecast for Lloyds’ dividend to be 4.5p this year before progressing to 5.5p by 2019, which would give a prospective dividend yield in the range of between 6.9 percent to 8.4 percent over the period.
Jefferies and HSBC both reaffirmed Lloyds as a ‘buy’ today, valuing the shares at 91p and 76p, respectively. According to MarketBeat, the bailed-out lender currently has a consensus ‘hold’ rating and an average price target of 71.84p.