On Monday, Lloyds Banking Group Plc (LON:LLOY:LN) (NYSE: LYG) stock faced a downgrade from 'Buy' to 'Neutral' by Citi, with a revised price target set at £0.60, a decrease from the previous target of £0.68. The adjustment comes as the bank's outlook appears less certain according to the firm's analysis.
Citi's reassessment of Lloyds' stock is driven by several factors impacting the bank's future earnings and capital return prospects. The firm anticipates a slight downside risk to consensus earnings for the year 2026.
Additionally, the possibility of an increase in share buyback to £2.0 billion with the financial year 2024 results seems less likely following recent remarks from the Financial Conduct Authority (FCA) regarding motor finance redress and a delay in the review process.
The stock's valuation also contributed to the downgrade. Lloyds no longer appears as attractively priced, currently trading at 1.1 times price to tangible book (P/TB) value.
This valuation is considered in light of the bank's sustainable return on tangible equity (RoTE), which stands at approximately 14%, with a target of over 15%. These figures come into play even after taking into account the recent correction that has affected the broader sector.
Citi's analysis suggests that these developments have added layers of uncertainty to the bank's capital return prospects, which may affect investor sentiment. The FCA's delayed review, in particular, introduces additional variables that could influence the bank's financial strategies moving forward.
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