UK bank earnings preview – Lloyds, Barclays, RBS

This week sees three major UK banks report earnings. We take a look at what to expect. 

Lloyds bank
Source: Bloomberg

Lloyds (Q1 trading statement 25 April)

Hopes that producer price index (PPI) would diminish in importance for Lloyds have been dashed, as the regulator’s advertising campaign boosted the visibility of the scandal. Full-year results contained the admission that the group would have to put £600 million more aside, pushing the total bill above £18 billion. Investors will be looking for an update on the plan to boost capital generation, in order to put payouts on a more secure footing. The shares continue to trade on an undemanding forward price-earnings (PE) ratio of 8.7, against 12.8 for its peers and a two-year average of 9.2, while its 4.6% yield is above the 3.9% average of the past two years.

Lloyds shares continue to trade within the range that has held since early 2017. The price is currently in the middle of the range, bounced by 61p on the downside and 71 and 74p on the upside.

Barclays (Q1 trading statement 26 April)

Updates on the corporate and investment bank will be key for investors, as Barclays looks to improve performance here. PPI claims will doubtless crop up too, as will the recent decision by the Serious Fraud Office (SFO) to charge the bank over a loan to Qatari investors back in 2008. Having committed in its full-year results to raising the dividend, it will be interesting to see how the quarter has gone overall, and whether the bank has benefited from the increase in volatility over the past four months. A 1.4% yield versus the 3.9% comparative average for the sector, and a weaker operating forward operating margin (at 28.4% versus 33.5% over the past seven years) also diminish the attractiveness of the stock from a fundamental standpoint.

Barclays has seen a steady progression of higher lows since November, but gains have petered out below 220p. The price finds itself just below this once again, and a break higher would target 240p, a level not seen since early 2017. A break below 200p would break the sequence of higher lows.

Royal Bank of Scotland (Q1 earnings 27 April)

Having finally delivered an annual profit last year for the post-crisis period, the Royal Bank of Scotland will have a tough act to beat this time around. Again, resolution of legacy issues, including US mortgage misselling, payments to victims of its Global Restructuring operation, plus PPI, will dominate news. However, the bank is highly sensitive to higher rates, and with these picking up around the globe, there could be greater upside in the shares. At 8.8 times next year’s earnings, the bank is trading on an undemanding multiple. Having underperformed rivals Lloyds and Barclays over the past year, the stock needs to find a catalyst to close some of this gap.

RBS’s elegant uptrend from the end of 2016 has been broken, and while the stock has recovered from the lows of March, the rally could be at risk of turning lower. A move back below 270p and also below the 200-day simple moving average (SMA) of 269p would be a bearish sign. Near-term support areas come in at 260p, and then 252p. A close above 290p would be needed to suggest the period of weakness has run its course.

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