Nomura still bullish on UK domestic banks, Barclays and Lloyds among top picks
Nomura remains bullish on domestic UK banks, highlighting Barclays and Lloyds Banking Group among its top five picks in the sector.
Banks
4,008.17
16:59 23/04/24
Barclays
192.24p
16:40 23/04/24
FTSE 100
8,044.81
16:49 23/04/24
FTSE 350
4,424.29
16:59 23/04/24
FTSE All-Share
4,378.75
17:14 23/04/24
HSBC Holdings
667.70p
16:39 23/04/24
Lloyds Banking Group
51.34p
16:34 23/04/24
NATWEST GROUP
285.80p
16:35 23/04/24
Standard Chartered
680.60p
16:34 23/04/24
It said that despite a number of headwinds facing the UK banks, they appear well positioned relative to peers in terms of capital, underlying profitability, growth and earnings expectations.
Nomura kept its ‘buy’ rating on Lloyds and Barclays. It kept Royal Bank of Scotland, HSBC and Standard Chartered at ‘neutral’ and said it sees a more cautious outlook for the UK Asian banks, given macroeconomic and asset-quality risks, despite a substantial period of underperformance.
The Japanese bank noted that global equity markets have sold off around 10% since China depreciated its currency in early August. European markets have sold off around 15% and the US approximately 8% over the same period, and European banks have underperformed the market by 3%.
In this context, Nomura said domestic UK banks have managed to outperform the EU banks sector by about 8%.
As far as Barclays is concerned, it said the bank is six quarters into its current strategy and momentum is clearly visible, with group costs down 5.4% in the first half of 2015 compared with the same period last year.
“We think a new chairman and CEO combination will aim to build on this momentum and trigger further upside.”
Nomura said it expects Lloyds to deliver a return on tangible equity of around 15% on an underlying basis.
“With profitability that is among the highest in the sector, we expect Lloyds to eventually pay a top decile dividend yield, though in the near/medium term, dividends are curtailed by litigation.”
At 1025 BST, Barclays shares were down 1.1% at 242.40p and Lloyds was 0.9% lower at 73.44p.