Lloyds’ Shares Rose 1.73% After Morgan Stanley’s Top-Pick Rating

The Lloyds Banking Group PLC (LON: LLOY) share price rose 1.73% after Morgan Stanley published an investor note stating that the bank was its top UK banking stock for next year. Investors cheered the news, as evidenced by Lloyds shares rising slightly. 

JP Morgan noted that during the third quarter, there was a noticeable slowdown in the migration of the deposit mix, which might lead to a more favourable outcome for net interest margins (NIM) in the fourth quarter than previously anticipated. This change also enhances the forecast clarity for 2024.

The outlook on UK banks remains positive, with a particular emphasis on Lloyds, which is highlighted as the top choice. The broker anticipates Lloyds' NIM will decrease by 6 basis points quarter-over-quarter to 3.02%, aligning with the company's projections and the general consensus.

Looking ahead to 2024, the broker predicts a NIM of 2.94% for Lloyds, which falls within the company's guidance of “below 3%”. Additionally, the broker foresees a release of a £500 million provision linked to the reversal of the Telegraph debt in December. 

The release leads to an increased expectation for share buybacks, rising from the initial £2 billion to £2.5 billion, surpassing the consensus estimate of £2.2 billion. The bank reaffirms its ‘overweight' rating on the stock, citing its tangible net asset value at 0.9x for a 13% return on tangible equity from 2024 to 2026.

Regarding Barclays PLC (LON: BARC), the recent investor update is a positive development. However, for NatWest Group PLC (LON: NWG), there's an anticipation that it might lower its 14-16% ROTE (return on tangible equity) guidance.

For NatWest, the bank projects a decrease in NIM from 2.94% to 2.87% in the quarter, which aligns with the consensus. Although there's potential for short-term gains due to lower deposit competition, NatWest is perceived as more sensitive to interest rate changes among the three leading domestic banks, which could make it susceptible to lower rate curves.

Barclays maintains an ‘overweight' rating, while NatWest holds an ‘equal weight' rating. Furthermore, the broker has slightly increased its price targets for HSBC Holdings PLC (LON: HSBA) and Standard Chartered PLC (LON: STAN), indicating subtle adjustments in their market positions.

Lloyds share price. 

The Lloyds share price edged 1.73% higher to trade at 46.008p from Thursday’s closing price of 45.225p.