Lloyds Banking Group: What the analysts think

We've written already today about Lloyds Banking Group's forecast-beating results, with underlying profit, margins, costs, impairment charges and balance sheet strength all ahead of consensus estimates. But what do the Square Mile's number crunchers think?

Highly-regarded Investec Securities analyst Ian Gordon is over the moon. In a note titled "Living the dream…" he imagines Lloyds investors waking up Thursday to a "pretty glorious reality".

"Further material impairment/net interest margin/dividend-led consensus upgrades seem inevitable," he added, repeating 'buy' advice and a 74p price target.

"Our basic investment thesis remains unchanged - we only expect broadly stable underlying PBT (£7.8-£7.9 billion through 2016-2019e) but as net negative exceptional items decline, this translates directly into substantially increased dividend-paying capacity."

Gordon, who thinks consensus dividend forecasts of 3.8-4.9p for 2017-2019 are "too low", pencils in 5.5p in 2019, giving a prospective dividend yield of 8.2%.

"Lloyds remains our top large-cap UK bank pick. On 1.2x 2016 [tangible net asset value] for [return on tangible equity (RoTE)] of 9-11% through 2017-2019e, supplemented by our (unchanged) expectation of a sharp rise in dividend payouts, we reaffirm our 'buy' recommendation."

Over at Barclays, analysts Rohith Chandra-Rajan and Aman Rakkar liked the "strong" results, pointing out that margins and provision charges have been key areas where the market has been concerned about sustainability.

It's why the pair believes this "outperformance and improved guidance [is] particularly supportive of a sustained strong RoTE. This in turn supports strong capital generation and prospects for capital return."

They stick with their 'overweight' rating and 75p price target.

David Lock at Deutsche Bank was recently sceptical about the ability of Lloyds shares to outperform amid "UK macro and political uncertainties" in the run up to the snap general election on 8 June.

He repeated his 'hold' rating earlier this month, but trimmed his price target by 3p to 66p to factor in the ex-dividend date and lower valuation multiples used.

And despite these results, Lock makes no changes to his outlook, although he believes guidance for 2017 should drive earnings per share upgrades.

"1Q17 performance has been better than expected, and what is encouraging is that [net interest income] has beaten at the same time as [net interest margin] guidance being raised," he writes.

"Capital generation pre-dividend expected to be at the top end of the 170-200 basis points range which should raise prospects of a better special dividend for 2017."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.