Barclays reiterates overweight on Lloyds, ups target price

Improved net margins and further liability cost reductions at Lloyds will help the lender sustain sufficent capital returns to allow it to return roughly a quarter of its market capitalisation to shareholders, Barclays said.

Analysts at the broker laud the lender's positive surprises on both net interest margins and lower provision charges in its first quarter numbers.

Admittedly, the latter might not be sustained, they say.

However, the stronger NIM looks "stickier" with additional reductions in Lloyds liability costs expected to largely offset asset pricing pressure, Barclays says.

Hence, the broker believes Lloyds will be able to sustain an underlying return on tangible equity of nearly 15%.

That, the broker explains, is what will allow it to return about 25% of its current market capitalisation to shareholders over the coming three years.

Sporting a 2017 price-to-earnings (on an underlying basis) multiple of 8.9, trading on a tangible book value of 1.3 and with a dividend yield of between 7% to 9%, the shares are "attractive", the analysts say.

They also reiterate their 'Overweight' recommendation on the shares and lift their target price to 77.0p.

"Together with our 5p dividend forecast this offers a 19% total shareholder return over the next 12 months."