What to make of Lloyds Bank results
1st August 2018 10:42
by Richard Hunter from interactive investor
Lloyds shares may be the most widely held, but 2018 has been disappointing so far. Richard Hunter, head of markets at interactive investor, assesses recovery potential following latest numbers.
Lloyds Banking Group is enjoying the benefit of the doubt as the strength of these numbers is enough to offset the disappointment of another PPI hit.
The key metrics are in very good shape, with a rise in Net Interest Margin, improved earnings per share and a cost income ratio which now sits below 48%.
In addition, the return on equity number is robust and the capital cushion healthy, enabling an increase to the dividend which puts the projected yield at 5.4%, a clear attraction in itself.
Meanwhile, the supportive share buyback programme is nearing completion, with further schemes a distinct possibility. Unsurprisingly, these factors have all combined to drive the profit figure sharply higher.
Source: interactive investor Past performance is not a guide to future performance
The additional PPI provision is an unwelcome development. The issue has long cast a shadow over the sector and Lloyds in particular. It is especially galling given that the Q1 update suggested that these provisions were on a downward trajectory and that the issue was close to being consigned to the history books.
This will not sit comfortably with the current view that the UK economy may have some troubling times to come, with Lloyds being potentially exposed to consumer defaults through its credit card business, let alone any difficulties which higher interest rates could bring.
This may explain why bears of the stock have the upper hand at present. The shares have fallen 5% over the last year, as compared to a 5% hike for the wider FTSE 100, and are down 10% in the last six months.
Despite an undemanding valuation and undoubtedly robust numbers, the market consensus has also slipped to a 'hold', albeit a strong one.
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