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Is the Lloyds share price a buy after Deutsche Bank up target by 17%?

Lloyds’ share price is up 15% since the start of the year, outpacing rivals RBS [RBS] and Barclays [BARC]. Over October, shares rose sharply as parliament passed Boris Johnson's EU withdrawal deal.

 

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Yet, Q3 numbers saw profits slashed as Lloyds [LLOY] put aside a further £1.8 billion to pay for unexpected PPI charges - enough to send Lloyds’ share price down 2% on the day.

In the results, profits slumped to £50 million, down from the £1.8 billion seen in the same quarter last year.

Commenting on the PPI payout, Antonio Horta-Osorio, Lloyds’ chief executive, said:

“I am disappointed that our statutory result was significantly impacted by the additional PPI charge in the third quarter, driven by an unprecedented level of PPI information requests received in August.”

At least Horta-Osorio can comfort himself that the August deadline for PPI charges has now passed.

“I am disappointed that our statutory result was significantly impacted by the additional PPI charge in the third quarter, driven by an unprecedented level of PPI information requests received in August.” - Antonio Horta-Osorio, Lloyds’ chief executive

 

Deutsche Bank ups Lloyds’ price target

Speculation over the Lloyds share price has focused on its ties to movements in the wider economy. One issue that investors have focused on more than any other is Brexit.

But while the UK's political landscape is as tumultuous as ever, it's now looking like a no-deal departure from the EU is unlikely. At least, that's the view of Deutsche Bank who have upped their price target on Lloyds by 17% to 62p.

In a note to clients the German bank commented: “While political uncertainty continues to weigh on economic activity, the risk of a crash Brexit has receded."

Deutsche Bank highlighted strong mortgage growth over the past three months, although there is still pressure on Lloyds’ revenue.

Deutsche Bank also upped its share price targets for Barclays by 20% to 205p and RBS by 9% to 235p.

Of course, the result of the 12 December election is likely to have a substantial impact on the markets, and Lloyds in particular.

 

Lloyds considering bid for Metro bank?

According to the Evening Standard, speculation in the City is that Lloyds could be considering buying Metro Bank on the cheap.

Metro Bank's share price has skidded a huge 87% this year and the bank is now worth just £406.237 million.

The Evening Standard sees a couple of reasons why Metro Bank could soon be up for sale. First, Metro Bank carries high funding costs, meaning it could well be looking for a partner. Secondly, it's a bargain. An unnamed source told the Standard:

“Metro [Bank] is trading at less than a quarter of book value, so Lloyds gets to pick up the assets cheaply. What would Lloyds do with the brand and branches? I suppose it could keep it separate, but if you are paying that little you can afford to keep what you want and chuck away the rest.”

 

Market cap£42.67bn
PE ratio (TTM)20.92
EPS (TTM)2.80
Operating margin (TTM)33.39%

Lloyds share price vitals, Yahoo finance, 12 November 2019

 

Is Lloyds’ share price a buy?

Among the analysts, Lloyds carries an average share price target of 75.37p. Hitting this would represent a 28.9% upside on the current share price. Lloyds is also a major income play, carrying a 5.79% forward dividend yield. However, a price to earnings multiple (TTM) of 20.9x is very much middle of the road from a valuation perspective, more expensive than HSBC (11.7x), but cheaper than RBS (34.58x).

Deutsche Bank's backing is no doubt welcome, but not everyone's convinced. At the end of October, Citigroup downgraded their rating on Lloyds from Buy to Neutral. In their analysis, Citigroup argue that Lloyds’ rising share price offers a “less attractive” risk/reward.

With the UK gearing up for its third general election in three years, Lloyds’ share price could be in for some volatility.

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