How will the election impact the RBS and Lloyds share prices?
The UK General Election is fast approaching, but how will it impact the share prices of British lenders like Royal Bank of Scotland and Lloyds?
The UK General Election will take place on December 12, with the pound surging to a six-month high last week after a YouGov poll predicted the Conservative Party would secure a majority of 359.
Berenberg upbeat about RBS and Lloyds this Xmas
Analysts at Berenberg believe that more domestically focused UK lenders like Lloyds and RBS could see short-term gains if the upcoming election proves to be ‘market friendly’ in a note to investors this week.
The Hamburg-based bank went on to say that it believes that Lloyds could outperform its rivals in the UK, while Barclays and HSBC, which both have large exposure to US and Asia, could struggle.
However, analysts at the investment bank were quick to point out that any gains Lloyds enjoys from the election will be short-lived, with RBS likely to benefit more over the long-term given the bank’s increased lending capacity.
Speaking more broadly about the sector, Berenberg analysts urged investors to exercise a degree of caution, with the headwinds facing UK banks this year likely to continue into 2020.
‘We believe headwinds from low interest rates and structural challenges facing investment banks remain poorly reflected in consensus and that cost inflation from the necessary investment in compliance and risk controls may be material,’ analysts said in the note.
Analysts optimistic for RBS but mixed about Lloyds
Analysts at HSBC, Deutsche Bank and Goldman Sachs all upgraded their target price for RBS in November, issuing targets of 230p, 235p and 285p respectively.
This year, RBS’ share price remains flat, up marginally on a year-to-date basis at 218p. However, based on that price, the three banks believe that the stock has a potential upside of between 5.5% and 30%.
Analysts following Lloyds are far more mixed about its price trajectory, with Goldman Sachs believing the stock is overvalued, reiterating its ‘sell’ rating and issuing a target price of 51p. Société Générale, however, is far more upbeat, reiterating its ‘buy’ rating and issuing a target price of 76p.
Lloyds closed at 59p on Tuesday. Based on that price, analysts believe the stock could trade -13% lower or rally as much as 28%.
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