Outlook for TSB more challenging after recent run, says Investec
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Lloyds Banking Group
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Would-be TSB investors should "keep their powder dry", according to Investec, which rated the Lloyds Banking Group offshoot as a 'hold' with a 290p target price after the stock's recent run.
Analyst Ian Gordon said that TSB has enjoyed a "fantastic market debut" since floating on the market in June at 260p, materially outperforming all other UK banking stocks.
He said that investors have rightly endorsed management's target of a return on equity of 10%-plus by 2019.
However, the near-term outlook appears "much more challenging".
"We expect the franchise business (excluding 'mortgage enhancement') to report a loss in both the second half of 2014 and 2015, and on a 12-month view we see modest absolute downside and better value elsewhere," Gordon said.
He said that the longer-term TSB investment case is attractive, but expects better entry levels to emerge.
"As such, we now encourage would-be investors to keep their powder dry. Equally, we believe existing shareholders should consider opportunities to 'lighten up' with a switch into Lloyds ('buy') which we think, on a 12-month view, offers superior upside as well as dividend support."
The stock was down 1% at 287.04p by 10:18 on Monday.
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