Broker snap: Lloyds confident of passing tests

4th Dec 2009 12:45

Societe Generale (SocGen) reckons the faster than expected stabilisation of the net interest margin at part-nationalised lender Lloyds Banking has been overlooked, and sees further scope for margin improvement as the company reduces its reliance on government funding.'Looking ahead, while Lloyds currently relies on government guaranteed/assisted funding, this is an expensive source of wholesale funding for Lloyds as it has to pay a fee to the government,' the French bank notes.SocGen has reiterated its 'buy' recommendation on the stock. 'Trading on 5x earnings and 0.7x tangible book (2013e) [estimates for 2013], we believe it is undervalued for a market leader in the UK with improving earnings outlook,' SocGen said. It has a 12-month price target of 100p.The chief financial officer of Lloyds recently spoke at a SocGen event and intimated that 'Lloyds is confident its is raising more than needed to pass the FSA [Financial Services Authority] stress test.''Regarding the Enhanced Capital Notes (ECN) which will be converted into equity should core tier 1 fall below 5% - Lloyds believes it has built in enough downside to the models that it simply does not expect the ECN to be converted into equity in the future, limiting current shareholders dilution,' SocGen said..