Equities Finance and Banking

Lloyds share price: Analysts weigh in on potential Brexit impact

Analysts at Jefferies expect potential Brexit and a short-lived recession to impact 2017 and 2018 earnings at Lloyds Banking Group (LON:LLOY). The comments come ahead of this Thursday’s referendum on the UK membership in the European Union, with a potential ‘Leave’ vote also expected to scupper the government’s plans to offer shares in the bailed-out lender to private investors.

Lloyds’ share price rallied in yesterday’s session, adding as much as 7.61 percent to end the day at 70.00p, propped up by expectations that the UK would vote to remain in the EU. The shares, however, remain below the taxpayer’s break-even price of 73.6p.
“Functionally speaking Lloyds is relatively defensive in a Brexit scenario given two-thirds of its balance sheet is in UK mortgages,” Jefferies analyst Joe Dickerson wrote yesterday, as quoted by Interactive Investor. “However a recession would impact H2017 – 2018 EPS [earnings per share] given normal lags.”

The analyst further continued that assuming a rise in cost of risk to 60 basis points, a surge in residential mortgage risk to 50 percent, a 10-percent drop in commercial bank fee income from the full-year 2015 base, and £1 billion in costs for separating Bank of Scotland, the broker’s “2018 EPS falls to 5.1p (from 8.4p), dividend per share to 1.4p (from 7.8p) to maintain a 13% CET1 [common equity tier one] ratio and price target to 64p (from 108p)”.
The comments come ahead of the EU referendum on Thursday, with a potential Brexit vote expected to derail the planned Lloyds share sale. The government, which still holds about nine percent in the blue-chip group, meanwhile is thought to be aiming to sell £2 billion worth of shares in the bailed-out lender to retail investors as early as August, should the UK vote to remain in the EU.
As of 07:59 BST, Tuesday, 21 June, Lloyds Banking Group share price is 70.00p.

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