ii view: Lloyds Bank optimistic during key year for strategy

Second-quarter results to 30 June

• Net income down 8% to £4.15 billion from Q2 2023
• Impairments of £44 million, down from £419 million in Q2 2023
• Pre-tax profit up 5.6% to £1.7 billion
• Capital cushion or CET1 ratio flat at 14.1%
• Interim dividend up 15% to 1.06p per share
• Ongoing £2 billion share buyback programme

Chief executive Charlie Nunn said:

“2024 is a key year for our strategic delivery. We continue to deliver on our strategic transformation, as illustrated in the fourth of our investor seminars last month. We remain on track to meet our 2024 targeted outcomes. 

“Guided by our purpose, we continue to support customers in reaching their financial goals and successfully transform our Group. This underpins our ambition of higher, more sustainable returns that will deliver for all of our stakeholders as we continue to Help Britain Prosper."

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ii round-up:

Significantly enlarged by its acquisition of HBOS during the 2008 banking crisis, Lloyds Banking Group (LSE:LLOY) is today home to household brand names including Lloyds Bank itself, Halifax, Bank of Scotland, MBNA, Scottish Widows and Birmingham Midshires.  

It operates through three core divisions: Retail, Commercial Banking and Insurance, Pensions and Investments.

For a round-up of these latest results announced on 25 July, please click here.

ii view:

Operating in the UK, Lloyds Banking Group employs around 63,000 people, servicing approximately 26 million customers across 16 different brand names. Competing against rivals including NatWest Group (LSE:NWG), Barclays (LSE:BARC) and HSBC Holdings (LSE:HSBA), its core strategic pushes are to grow revenues from diversifying sources, continue digitalising its businesses, while improving efficiency and enhancing customer relationships. 

For investors, the investigation into potential motor finance mis-selling continues to overhang. Competition across the sector including that for mortgages remains fierce, with UK housing market activity still subdued. Group diversity of geographical region and product offering such as investment banking are not on the scale seen at rival Barclays, while an estimated one-year price/earnings ratio of 8.9 times is above the three-year average, suggesting the shares are not obviously cheap. 

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To the upside, bad debt provisions fell significantly year-over-year, potentially pointing toward a stabilisation of the UK economy. A £3 billion investment to enhance services is ongoing. Both customer loans and deposits increased, while the balance sheet remains robust with a capital cushion, or CET1 ratio of 14.2%.  

For now, and despite continued risks, a consensus analyst fair value estimate of 62p per share and forecast dividend yield of around 5.4% are likely to keep long-term fans of this UK banking giant on side. 

Positives

• Focus on reducing costs
• Attractive dividend (not guaranteed) 

Negatives

• Uncertain economic outlook
• Lacks the geographical diversity of some other banks

The average rating of stock market analysts:

Buy