Lloyds Banking Group (LLOY)

Source: CMC Markets, 19 July 2018

Lloyds has the biggest mortgage balance among UK banks (21% market share) and would likely see the most benefit from the Bank of England’s interest rate hike, that is widely expected on 2 August, just one day after Lloyds reports its quarterly results.

The combination of new earnings results and a meeting of the BoE’s Monetary Policy Committee (MPC) could present tradable opportunities for investors, especially if the two events diverge. If Q2 results disappoint, potentially sending the bank’s share price lower, but the MPC decides to hike its base rate, could this open a path to a rebound from bargain-level lows?

Brokers are bullish, with 74% of analysts saying either “Buy” or “Hold”, while 26% are saying “Sell”. A significant 84% of brokers are projecting a share price upside, with the average target price of 76.06p.

Will Lloyds return to May highs of 67.4p (+8.4%) or fall to June lows of 60.5p (-2.8%)?

• Trading in a falling channel since the beginning of 2018
• Shares are off June lows, in a short-term June-July uptrend toward channel’s ceiling
• MACD crossed over signal line (a bullish signal) in late June
• Trend’s strength (ADX) is weakening, leading to a shallower uptrend

Broker Consensus: 52% Buy, 22% Hold, 26% Sell
Bullish: Jefferies, Buy, Target 104p, +67% (11 Jun 18)
Average Target: 76.06p, +22% (16 July 18)
Bearish: Goldman Sachs, Sell/Neutral, Target 58p, -7% (8 Mar 18)

Pricing data sourced from Bloomberg on 19 July 2018. Please contact us for a full, up to date rundown.

Barclays (BARC)

Source: CMC Markets, 19 July 2018

Barclays has exposure to the US market and recently passed the Federal Reserve’s stress test for banks, gaining approval for its capital allocation plans and opening the door for higher dividend pay-out or a share buyback programme.

Bank’s current dividend yield (1.48%) compares unfavourably to that of peers HSBC (4.93%) and Lloyds (4.48%) and with bank’s management under pressure from activist investors to shrink its investment banking operations, an improved dividend could win many shareholders to CEO Jes Staley’s side.

Broker consensus is biased to the positive, as 46% of Brokers advocate a “Buy” strategy, 42% saying “Hold” and only 12% saying “Sell”. Average broker target price of 219p hints at a return to April 2018 highs and an overwhelming majority of brokers (90%) are seeing an upside from current levels.

Will Barclays rise back to April high of 217p (+13.8%) or fall to 2017 low of 177p (-7.1%)?

• Falling channel since May, but recently found a support around 184p level
• Attempting to break out from the channel
• MACD is still negative, but trending higher since early July
• Strength of the downtrend (ADX) has significantly weakened since early July highs.

Broker Consensus: 46% Buy, 42% Hold, 12% Sell
Bullish: Jefferies, Buy, Target 265p, +39% (23 May 18)
Average Target: 219p, +15% (16 Jul 18)
Bearish: Keefe, Bruyette & Woods, Underperform, Target 190p, -1% (12 Jul 18)

Pricing data sourced from Bloomberg on 19 July 2018. Please contact us for a full, up to date rundown.

Royal Bank of Scotland (RBS)

Source: CMC Markets, 19 July 2018

At the end of the first quarter, three major issues still cast a shadow over Royal Bank of Scotland:

1. Settlement of a legal dispute with US authorities over mis-selling of toxic securities.
2. Re-privatisation of the bank and reduction of government stake.
3. Resumption of dividend payments, suspended since 2008 bailout.

By the end of Q2, RBS managed to partially resolve the first two issues, agreeing to pay a $4.9B fine in the US, while the UK government began divesting its stake (initially reducing it from 70% to 62%). Return to dividend pay-outs would mark a new chapter in RBS history, turning the page on its 2008 near-collapse.

Analyst recommendations are mixed, though the majority (96%) is holding for either “Buy” or “Hold”. Average target price of 311p is well above 2018 highs and all 18 recent broker updates see an upside from current levels.

Will RBS rebound to 305p 2018 highs (+24.7%) or revisit April 2017 lows of 221p (-9.4%)?

• Sharp share price decline in Q2, with a potential range developing between 240p and 305p
• Dual support around 240p, horizontal (Sep 2017 lows) and rising (dating back to early 2017)
• Technical indicators (RSI, Stochastics) are oversold and MACD crossed over: all bullish signals

Broker Consensus: 44% Buy, 52% Hold, 4% Sell
Bullish: Jefferies, buy, Target 358p, +47% (6 Jun 18)
Average Target: 311p, +28% (16 July 18)
Bearish: AlphaValue, Add, Target 270p, +11% (12 Jul 18)

Pricing data sourced from Bloomberg on 19 July 2018. Please contact us for a full, up to date rundown.

HSBC (HSBA)

Source: CMC Markets, 19 July 2018

HSBC is a heavyweight component of UK 100 blue-chip index and the most globally-oriented of major UK Index banks. Its worldwide presence gives it significant financial resilience, but also exposes it to major geopolitical events, especially to the fallout from trade confrontations between US, EU and China.

£2B share buy-back, initiated together with the announcement of Q1 results, has been welcomed by shareholders, but questions remain about the bank’s rising operating expenses as it invests in future revenue growth, disappointing investors who are looking for more short-term return on their equity.

Broker consensus is positively biased, with 89% of analysts suggesting either “Buy” or “Hold”. Analyst comments have been bullish, with the latest note from Société Générale (13 July) suggesting a target price of 760p, while the average target across all recent updates stands at 784p, close to 2018 highs.

Will HSBC come back to 2018 high of 798p (+13%) or retreat to 2018 low of 650p (-7.9%)?

• Second quarter trading saw share price consolidation, with shares comfortably off 2018 lows
• July uptrend, with a potential range developing between 692-750p
• In a bullish sign, MACD crossed over in early July, signalling continuation of uptrend

Broker Consensus: 36% Buy, 53% Hold, 10% Sell
Bullish: Jefferies, Buy, Target 950p, +35% (11 Mar 18)
Average Target: 784p, 11% (16 July 18)
Bearish: DZ Bank AG, Sell, Target 630p, -11% (12 Jun 18)

Pricing data sourced from Bloomberg on 19 July 2018. Please contact us for a full, up to date rundown.