ii view: Lloyds Bank pulls growth levers despite motoring uncertainty
Management continues to expand non-banking revenues and cut costs as part of an ongoing digitalisation of the business. Buy, sell, or hold?
14th March 2025 15:40
by Keith Bowman from interactive investor
Full-year results to 31 December
- Income down 5% to £17.1 billion
- Pre-tax profit down 20% to £5.97 billion
- Final dividend of 2.11p per share
- Total 2024 payment up 15% to 3.17p per share
- Capital cushion or CET1 ratio of 14.2%, down from 14.6%
Guidance:
- Targeting over £1.5 billion of additional income by 2026
- Targeting a 2026 cost:income ratio of below 50%
- Reducing CET1 to 13% by 2026
- New share buyback for the 2025 year ahead of up to £1.7 billion
Chief executive Charlie Nunn said:
"The Group delivered a robust financial performance in 2024. Pleasingly and as expected, income grew in the second half of the year, supported by a rising banking net interest margin and momentum in other income. We also maintained discipline in costs, whilst asset quality remained strong. This performance enabled total shareholder distributions of £3.6 billion.
“Looking forward, we are building momentum as we enhance our franchise and deliver differentiated outcomes for our customers. Our strategy is transforming our capabilities, enabling us to deepen relationships with our customers, grow in high value areas and drive cross-Group collaboration. We are confident of generating more than £1.5 billion of additional income from our strategic initiatives by 2026 as we build towards higher, more sustainable returns."
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ii round-up:
With a history traced back to 1695, Lloyds Banking Group (LSE:LLOY) today operates across three divisions.
The Retail division generated most income during 2024 at 58% via brands including Lloyds, HBOS, Bank of Scotland and Birmingham Midshires.
Commercial Banking, serving small and medium businesses as well as corporate and institutional clients, generated 31% of 2024 income.
Insurance, Pensions and Investments, and home to brands such as Scottish Widows and Schroders Personal Wealth, accounted for 7% of income, with equity investments most of the 4% balance.
For a round-up of these latest results announced on 20 February, please click here.
ii view:
Operating in the UK, Lloyds employs around 63,000 people, servicing approximately 26 million customers across 16 different brand names. Rivals include Barclays (LSE:BARC), NatWest Group (LSE:NWG) and HSBC Holdings (LSE:HSBA). Group focuses under head Charlie Nunn include growing revenues from diversifying sources, continuing to digitalise the portfolio of businesses, while driving an ongoing transformation to improve efficiency and enhance customer relationships.
For investors, uncertainty regarding the final cost of settling motor finance mis-selling claims remains an overhang. Operating costs rose 3% in 2024, impacted by items taken to eventually reduce costs such as staff severance. Group diversity of geographical region and product offering such as investment banking are not comparable with rival Barclays, while a price-to-net asset value above the three-year average may suggest the shares are not obviously cheap.
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More favourably, management’s drive to grow income generated an additional £0.8 billion of revenues during 2024, including increased insurance sales and higher average vehicle rental values on its Tusker car leasing business. Cost savings of £1.2 billion helped mitigate inflationary pressures. Provisions regarding the mis-selling of motor finance already total £1.15 billion, while the balance sheet remains robust, even at a potentially reduced capital cushion, or CET1 ratio come 2026 of 13%.
In all, and despite ongoing uncertainties, management action to generate growth combined with a forecast dividend yield of 5%, should be sufficient to see fans of this UK banking icon remain supportive.
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:
Strong hold
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