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ShoreCap stays at 'buy' for most UK banking groups, prefers Barclays and Virgin Money UK

By Alexander Bueso

Date: Thursday 19 May 2022

ShoreCap stays at 'buy' for most UK banking groups, prefers Barclays and Virgin Money UK

(Sharecast News) - Analysts at ShoreCap reiterated their 'buy' recommendation for shares of the majority of the UK's main banking groups - with the exception of HSBC.
In particular, they highlighted the group's recent better-than-expected profitability, management teams' greater confidence in their ability to reach double-digit rates of return on tangible equity thanks to higher interest rates and their optimism regarding credit quality and impairment ratios.

Indeed, lenders expected the latter would remain below their through cycle averages during fiscal year 2022 thanks to the quality of their loan books.

And yet the current sector average price-to-tangible net asset value ratio was at just 0.66, a disparity that they described as poles apart from all of the above.

"Consequently, we believe the sector is mis-priced with an average 49% upside to our revised fair values," they said.

They kept their 'buy' recommendations on shares of Barclays (Fair value: 300.0p), Virgin Money UK (Fair value: 270.0p), StanChart (Fair value: 815.0p), Lloyds (Fair value: 60.0p), and NatWest Group (Fair value: 270.0p), adding that that was their order of preference for the various stocks from most to least.

But on HSBC (Fair value: 600.0p) they were at 'hold'.

In the case of Barclays, its shares were changing hands on an estimated P/TNAV ratio of 0.53, which was only ahead of Virgin Money on 0.47, but the upside to ShoreCap's fair value estimate was 92% as opposed to 82% for Virgin.

HSBC was sporting a P/TNAV of 0.80 and had only 20% upside remaining to fair value.

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