Banks are back in demand today, with Barclays currently top riser in a higher FTSE 100, as a research note from Citigroup boosts investor sentiment ahead of results.
Barclays, which kicks off the banks' reporting round tomorrow, is up 10.35p, or 4%, at 272.35p. In a note upgrading earnings forecasts for the UK domestic banks, Citigroup raises its price target on Barclays to 420p from 413p and has a "buy" recommendation on the bank.
Citigroup notes that Barclays, Lloyds Banking Group and Royal Bank of Scotland are all trading at "considerable discounts" to the European banks sector average. It adds:
"We believe there still exists genuine – if not entirely straightforward – value cases for these stocks."
It lifts Lloyds' price target to 70p from 69p and RBS to 35.3p from 34p.
Citigroup's overall improved stance on UK domestic banks is based on "recent macroeconomic, industry and comparator evidence of positive trends in relation to UK loan impairments, margins, wealth management product sales and investment banking earnings."
It continues:
"The UK banks are currently in a better-than-expected recovery stage, especially in relation to bad debts and margins. We suspect the market may be focusing too much on the medium-term 'transition' stage, when rates will rise and central banks exit from subsidised liquidity support – which we see as more uncertain in impact than necessarily negative – and perhaps underestimating both the strength and longevity of the recovery stage, as well as the attractiveness of the final 'consolidation' stage for the industry."
