Broker snap: UBS upgrades Lloyds to buy

Analysts at UBS believe that Lloyds is set to deliver rising margins, falling costs and falling provisions, over the next few years, which should provide a very strong upswing to profitability and EPS momentum.Arguing in favour of the above, they think that the future regulatory agenda will be less aggressive than what we have experienced over the last 18 months, the bank has the simplest investment strategy and its balance sheet contraction is set to reverse. Regarding that last point, UBS highlights how - unlike RBS and Barclays, which have been lending strongly into the UK mortgage market while contracting balance sheets in other areas - Lloyds has been shrinking both its non-core assets in 2012 and its core lending into the UK mortgage market as well. That will provide an additional catalyst specific to Lloyds.For all of the above reasons they have decided to raise their price target on the company's shares to 60p, from 50p before, based upon a sustainable return on equity (RoE) of 13% generated by Lloyds' core business. They also upgrade their recommendation on the company's shares to buy, from neutral. AB