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Davy Research upgrades Lloyds to ‘outperform’, says preferred play in UK banking sector

The Irish broker also raised its target price for the FTSE 100-listed firm to 71p from 70p, citing strong capital return and a more resilient earnings forecast

Lloyds Bank sign
The Davy's analysts noted that Lloyds will return a third of its market capitalisation to investors in the period 2019-2021

Davy Research has upgraded its rating for Lloyds Banking Group PLC (LON:LLOY) to ‘outperform’ from ‘neutral’ and said the lender is its "preferred play" in the UK banking sector.

The Irish broker also raised its target price for the FTSE 100-listed firm to 71p from 70p, citing strong capital return and a more resilient earnings forecast. In morning trading on Tuesday, Lloyds shares were changing hands at 57.69p each, down 1.4% on Friday’s close.

READ: Lloyds bosses summoned by MPs to explain 'greedy' pensions policy

The broker’s analysts noted that Lloyds will return a third of its market capitalisation to investors in the period 2019-2021.

Overall, Davy’s analysts pointed out that retail banking in the UK remains challenging, not helped by an uncertain macro environment.

The analysts added that even if Brexit uncertainties lift, the UK economy is already at a late stage in the cycle.

They reiterated a ‘neutral’ stance on rival Royal Bank of Scotland Group PLC (LON:RBS) which the analysts think is more sensitive to the current economic and political uncertainty than Lloyds, citing RBS's larger UK business exposure.

The Davy’s analysts also started coverage of CYBG PLC (LON:CYBG) with a ‘neutral’ rating and a 159p price target.

They pointed out that while CYBG’s acquisition of Virgin Money has created significant opportunities for they group, the analysts warned that a competitive mortgage environment may negate cost reductions and top-line revenue opportunities in the coming years.

Quick facts: Lloyds Banking Group

Price: 35.935 GBX

LSE:LLOY
Market: LSE
Market Cap: £25.46 billion
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