Analysts said they were encouraged that
Lloyds Banking Group – partly nationalised by the UK government during the financial crisis – had returned to profit in the first three months of this year, but warned of continuing political risks to the UK-listed lender.
Standard & Poor’s Equity Research unit said that it had raised its earnings per share forecast on Lloyds for the 2010-2012 period, and raised its price target on the firm’s shares to 73 pence from 56p, retaining a “hold” recommendation on the stock.
“We believe the release confirms the bank being on its way to a strong recovery in profitability, and the likelihood that it will reach, on our estimates, a return on tangible equity of 13 per cent in 2012, driven by further declines in loan loss provisions and the delivery of cost efficiencies arising from past acquisitions,” S&P said.
Meanwhile, Morgan Stanley was also cheered by the Lloyds interim statement but added it thought the bank’s share prices were “fully valued” around current levels.
S&P warned that among some of the downside risks to Lloyds was the difficulty in the bank making efficiency gains in a politicised environment. (It was alluding to the fact that job cuts and asset disposals might be hard to push through if the lender remains partly in state hands).
Morgan Stanley said that Lloyds’ shares were up just under 50 per cent from their lows in February and was above its price target. As previously stated, Morgan Stanley said it prefers Royal Bank of Scotland to Lloyds at these valuation levels.