Berenberg ups Lloyds to 'hold' on valuation

It said Lloyds' darling status has largely faded and weaknesses inherent in the bank's strategy, i.e. to focus narrowly on margins at the expense of risk-adjusted returns, are increasingly well-recognised.

"Risks remain, including from Brexit and from the Bank of England’s stress tests. However, with Lloyds’ shares down by circa 12% year-to-date, in line with large UK peers, the path to further absolute downside is less certain."

Still, it said that trading on 10x Berenberg's 2019 earnings per share forecasts, Lloyds remains its least-preferred large UK bank.

Berenberg argued that Lloyds is aesthetically cheap, trading on 7.7x consensus 12-month forward earnings, which is close to a post-Brexit low and around 12% below the stock's 12-month forward price-to-earnings ratio during the past year.

"This does not represent absolute value, in our view. In particular, our EPS estimates remain circa 25% below consensus. However, as downgrades resume, we expect Lloyds’ valuation to provide some support."

At 1450 BST, the shares were up 0.2% to 59.73p.