Jefferies cuts target for Lloyds, says income profile ill-suited for current market

Analysts at Jefferies cut their target price for shares of Lloyds from 47.0p to 42.0p, arguing that its revenue profile was ill-suited to current market conditions - but kept their recommendation at a 'buy'.

Ahead of the lender's first half numbers on 30 July, they slashed their estimates for full-year profits before tax through 2020 by about 10% on average.

Non-interest income was now seen 6% lower over the first half of 2020 and declining by 3% in outer years.

The latter downgrades were chiefly the result due to a now lower expected base for net interest income, while net interest margins were expected to be 10 basis points lower than before due to both 'mix effects' and the flatter government bond yield curve.

However, they conceded that the mix effects and flatter yield curve might both prove transitory.

They also expected Lloyd would provide clarity around its expected full-year impairment charges for 2020 and a steer on revenues, given the wide dispersion among analysts' estimates.

For their part, Jefferies had penciled in full-year underlying profits of £2.6bn, a net interest margin of 2.58% and £4.7bn-worth of impairment charges.

Costs were pegged at £8.6bn or £7.6bn after lease depreciation costs.

For the first half, Lloyd's group loan balances were seen down by 1%, net interest margins off by two basis points and 'other income' declining by 16%.

A further £3.2bn of credit charges were anticipated for 2020.