Morningstar analysts have taken a positive view of Lloyds Banking Group (LON:LLOY), arguing that while Brexit could affect the bailed-out lender’s operations more than those of peers, they nevertheless believe that the bank can weather any short-term volatility. The upbeat comments come as the FTSE 100 group prepares to update investors on its first-quarter performance on April 25.
Morningstar upbeat on Lloyds
Morningstar said in a note this month that it had updated its model for Lloyds with 2017 actual numbers, rolled its model by adding a year, and taken a fresh look at its estimates overall in light of the last management call and full-year results. On the whole, the analysts’ investment thesis remained intact, and their sentiment was the unique brand franchise was unchanged.
They further argue that in their base scenario, factoring in some slowdown in GDP growth as the UK leaves the European Union, they still believe Lloyds will continue to increase its return on equity during our forecast period.
“On the cost side, especially when it comes to regulatory cost risk, we believe the worst is over for Lloyds,” Morningstar pointed out, adding that it also saw Lloyds as one of the least affected when it comes to the loss of passporting rights, with the management team having already started the process of transforming the group’s Berlin branch into a full subsidiary in preparation for Brexit.
Lloyds results preview
Interactive Investor meanwhile reported that UBS expects Lloyds to report a margin of 2.91 percent, broadly in line with the fourth-quarter run rate and the company’s own forecasts for 2018, while adjusted profits are expected to come in just under £2.3 billion.
“During this time we also expect a healthy level of dividend income, yielding between 4.8% and 5.5% each year, before buybacks,” the broker’s analyst Jason Napier commented at the end of last week, as quoted by the newswire.