Barclays ups Lloyds to 'overweight'

6th Jan 2017 10:48

(ShareCast News) - Barclays upgraded Lloyds Banking Group to 'overweight' from 'equalweight' and pushed the target price to 75p from 55p, saying returns are supported by the planned MBNA acquisition and an improved net interest margin outlook."We see Lloyds making a consistent around 13% return on tangible equity over the next three years and returning almost a quarter of its market cap to shareholders, which suggests to us that the shares are undervalued at 1.2x tangible net asset value and 9.1x 2017E earnings."This is supported by a more resilient than previously anticipated UK economic outlook which we expect to result in more modest credit quality deterioration."Barclays also argued that margin prospects look positive thanks to higher medium-term rates, the limited likelihood of further base rate cuts and the planned acquisition of MBNA's UK credit card book.It said the UK government's resumption of its sell-down in the bank from October 2016 seems to be progressing at a good pace without much impact on the share price performance so far and this combined with an improved operating outlook lead to the rating upgrade.The government's stake in Lloyds is currently below 7%.At 1053 GMT, the shares were up 1.8% to 65.82p.