BofA Upgrades Lloyd's, Projects Return To Profit In 2020

Lloyds Banking Group PLC LYG is likely to report a profit — albeit a small one— in 2020, given its low impairment charge in the third quarter and extended support for borrowers, according to BofA Securities.

The Lloyds Banking Analyst: Rohith Chandra-Rajan upgraded Lloyds Banking Group from Underperform to Neutral and raised the price target from 26 pounds sterling ($33.76) to 30 pounds ($38.96). 

The Lloyds Banking Thesis:Given the prospects of a profit this year and its strong capital, the company seems well-positioned to restart dividends once the Bank of England lifts the ban, Chandra-Rajan said in a Wednesday upgrade note.

“We expect substantial improvements in mortgage pricing to be largely sustained and positive for income even after the negative impact of SVR refinancing. This should moderate the negative impact of the structural hedge rollover, which we expect to reduce income by £1.9bn over the next 5-6 years,” the analyst said. 

BofA raised the pretax profit estimate for 2020 from “a small loss” to 0.9 billion pounds.

“Risks to the timing and scale of capital distributions, economic uncertainty and a 13.4x 2021 PE multiple that’s a 40% premium to the sector, curb our enthusiasm.”

LYG Price Action: Lloyds shares were down 2.36% at $1.44 at last check Wednesday.