Bank watchers have some important dates coming up, with three of our high-street banks set to report interim results in the coming days.
Barclays (LSE: BARC) is up first, reporting on its first six months on Wednesday 29th, with Royal Bank of Scotland (LSE: RBS) a day later and Lloyds Banking Group (LSE: LLOY) finishing off the week with its figures out on Friday.
In its first quarter results released in April, Barclays provided evidence of an ever-strengthening recovery, claiming a rise of 9% in adjusted pre-tax profit, to £1,848m. Net tangible asset value per share stood at 288p, which looks pretty healthy to me at today’s share price of 283p. Looking to full-year forecasts, the pundits are suggesting a rise of a third in earnings per share (EPS), which would give us a P/E of 12. The Q1 dividend was held at 1p per share, but with a full-year payment of 8p expected (which would yield 2.9%), dividend news on Wednesday would be welcome.
Strong recovery
Over at Lloyds the recovery from the depths of recession has been healthy, and though EPS is expected to be pretty much flat this year and next now that TSB has been spun off, Lloyds reported a first-quarter rise in underlying profit of 21% to £2,178m. But what are Lloyds shares worth now? Well, the price has more than trebled in a little more than three years, to the 86p level.
But even after that, we’re looking at a forward P/E of only around 10.5. To put that into perspective, the long-term FTSE 100 average stands at around 14, and for Lloyds to get back to that kind of valuation would suggest a share price closer to 115p. Should Lloyds shares command such an average valuation? Well, there are surely fears of further banking misdemeanors yet to be uncovered, and the eurozone is pressing heavily on the banking sector right now.
But with Lloyds back to paying dividends, there are yields of 3.1% this year and 4.7% next on the cards, and that’s seriously better than the FTSE average of a little over 3%. Long term, I think Lloyds deserves a higher rating.
The shredded one?
That brings me to the enigmatic RBS, whose shares have gained 70% over a similar 3-year period, but they already command a higher P/E multiple than either Barclays or Lloyds. Forecasts suggest a ratio of 13 this year, with the bank expected to record its first significant EPS in years (last year’s 0.8p was just the turning of the corner). But at this stage, the City is expecting 2016 earnings to drop back, pushing the P/E up to 14.5. And this is a bank that is a long way from paying steady dividends at any decent level — we’re hoping there’ll be a payment this year, but it would yield less than 0.5%.
These three banks are very much a mixed bag. I see Barclays and Lloyds as being serious Buy candidates, but I really don’t see any attraction in RBS. We’re heading into a bank reporting season that’s not to be missed.