The week ahead: Lloyds Bank, Barclays, RBS

After a terrible year so far, investors will be hoping the high street banks have better news in these third-quarter results. Lee Wild discusses the chances.

Monday 22 October

Trading Statements

Petra Diamonds

AGM/EGM

Vast Resources

Tuesday 23 October

Trading Statements

1Spatial, Whitbread, Travis Perkins, Bunzl, Bloomsbury Publishing, St James's Place

AGM/EGM

Mirada, OPG Power Ventures

Wednesday 24 October

It's not been a great year so far for UK equities. The FTSE 100 is down almost 8% as investors worry about trade wars, Italian budgets, plunging Chinese shares, tech stock valuations, rising bond yields, Brexit…

But banks have been hit even harder. UK interest rates have risen slightly, which is normally good for bank sector margins as lenders increase the cost of mortgages and loans more than savings rates. But borrowing costs remain at historically low levels, and any downturn in the economy - possibly triggered by a messy Brexit – could negatively impact on demand for bank products.

Source: TradingView (FTSE 100, red; RBS, green; Lloyds, blue; Barclays, orange) Past performance is not a guide to future performance

Confidence in the UK domestic lenders is weak, currently trading on just 7.1-7.5 times earnings estimates for 2019, largely down to Brexit fears. Indeed, a recent survey of investors by UBS analysts found that 67% believed the market outlook for Lloyds Banking Group was bearish.  For more internationally exposed HSBC it was only 40%.

A significant discount to overseas heavyweights HSBC and Standard Chartered explains why UBS still prefers Lloyds, Royal Bank of Scotland and Barclays, its top pick going into these results. 

And it's Barclays that kicks off the bank reporting season midweek.

Look for adjusted pre-tax profit of £1.1 billion, little changed from a year ago, tangible net asset value (TNAV) per share of 258p and a common equity tier 1 (CET1) ratio steady at 13%. 

"We think Barclays is attractively valued at 7.4x 2019e EPS, 0.7x TNAV for a 9% ROTE [return on tangible equity] and with buybacks expect to de-lever these metrics substantially over the next 3-5 years," says UBS analyst Jason Napier, who rates the shares a 'buy' with 240p price target.

Trading Statements

U and I Group, Barclays, Stobart Group, Image Scan Holdings

AGM/EGM

Beeks Financial Cloud Group, DekelOil Public

Thursday 25 October

Because sentiment around Brexit is so poor, any sniff that the outcome might not be as bad as currently feared would likely give domestic banks a significant lift.

It's certainly what Lloyds Banking Group needs. Down 22% from its 2018 peak just below 73p, the shares now trade near a two-year low. But nothing in these numbers is expected to move the needle. 

On a forward price/earnings (PE) ratio of just 7.3, UBS thinks Lloyds is "attractively valued" and still worth 80p of anyone's money. "With substantial capital upside and significant capital returns, remains 'buy'."

Trading statements

Novolipetsk Steel, Coca-Cola European Partners, Air Partner, C&C Group, Hastings, Mail.RU Group, RDI REIT, Debenhams, WPP, Lloyds Banking Group, Kaz Minerals, RELX

AGM/EGM

1pm, South32, Premaitha Health, Oil & Gas Development, Filtronic, Goldplat

Friday 26 October

"Much as with Lloyds we see the RBS investment thesis as pretty straightforward and predominantly driven by an expected reduction in implied CoE [cost of equity] as the domestic political backdrop becomes clearer and more significant capital returns approach," writes Napier.

Royal Bank of Scotland is expected to have made £1.29 billion in the third quarter, a 4% increase on last year, but down 15% on quarter two. RBS enjoys a slightly more generous rating than Lloyds and Barclays, and the big mover here will be further news on the dividend. 

The recent resumption of dividend payments after a 10-year break was hugely significant, but shareholders will demand much more as reward for owning these risky shares.  

Trading statements

International Consolidated Airlines, Royal Bank of Scotland

AGM/EGM

Springfield Properties, K3 Capital, Argos Resources, Paternoster Resources