Analysts have slapped a ‘Buy’ rating on Barclays, Natwest and Lloyds shares following annual results, but said the latter was the “favourite” of the pack.
The three UK giants all posted annual results this month, with Barclays and Natwest meeting profit estimates and Lloyds taking a hit.
Jonathan Pierce and Priya Rathod, analysts at Jefferies, said they forecasted “medium-term upgrades” and were “more relaxed than many on the motor situation” after ranking Lloyds as their top choice.
They upgraded Lloyds and Natwest’s medium-term earnings per share numbers by around five per cent on higher income.
“This is slightly tempered by higher share counts given an increase in buybacks assumed,” they added.
Barclays and Lloyds each announced buybacks in annual results, with Barclays issuing a £1bn scheme, and Lloyds £1.7bn.
Natwest said future buybacks would “continue to be considered” but had reduced the UK government’s stake in the group to nearly seven per cent after disposing of nearly 80m shares.
Sector assets expected to boost
The analysts also predicted a distribution yield averaging 11 per cent per year in 2025-26, before lifting to 16 per cent in 2027 “as risk-weighted assets headwinds ease and a final burst of hedge tailwind lifts income”.
Pierce and Rathod said: “While higher rates dragged by another around £3bn in 2024, the pull to par was more than £4bn.
“This decay should persist and suggests a largely full unwind of the reserve by early 2027, boosting sector tangible net assets value by around eight per cent.
“Added to retentions, we see book value increasing around 23 per cent by the end of next year despite an around nine per cent drag from dividends.”
The analysts highlighted software spend reached £3bn software last year, noting this was 60 times as much as challenger bank rival Monzo’s entire IT spend.