BUY OR SELL:Time to buy Lloyds ahead of expected cash call? -- By Clara Ferreira-Marques

LONDON (Reuters) - Shares in Lloyds Banking Group are down 20 percent from their 2009 peak and trade on a discount to the European sector in terms of their multiple to prospective earnings.

So is now a good chance to buy, despite a bumper rights issue on the horizon?

BUY INTO RECOVERY
Britain's largest retail lender is considering whether it should exit a government-backed insurance scheme for bad debts.

It is expected to replace that costly safety net with a heavily discounted rights issue of over 11 billion pounds, complemented by possible asset sales and a debt exchange, analysts and industry sources say.

Analysts say that with most bad news priced in, pulling out of the Asset Protection Scheme (APS) -- no longer seen as value for money -- could be a catalyst for the stock, despite dilution as a result of the rights issue and a fee payable to the government for the protection Lloyds has already received.

Lloyds shares are trading at around 90p, vs an August peak of 113.5p. Analysts' median price target for the shares is currently 105p, according to Thomson Reuters I/B/E/S.

Analysts at investment bank FBR Capital Markets started the stock this week with an "outperform" rating and a 115p target price, "which suggests more than 25 percent upside from the current price and significantly more than the average price should Lloyds undertake a rights issue.

"The bank has suffered significant losses and pressures over the past two years, but we believe that if it can raise approximately 15 billion pounds in a public rights issue, it will be undervalued based on 2012 normalized earnings and price/NAV," FBR analysts said.

Analysts at brokerage Evolution, which initiated the stock with a "buy" rating on Tuesday, said: "Of course, in per share terms, (an estimated fundamental value of 69 billion pounds) will be very considerably diluted by the 15 billion rights issue and 5 billion pound debt/equity swap that we consider imminent.

"But even after all that, our (sum of the parts) valuation model yields a (theoretical ex-rights price) TERP-based target of 96p. All in, we calculate that investors buying a share of Lloyds today and participating in the upcoming rights issue could enjoy a 41 percent upside to our 96p target."

A rights issue at a 50 percent discount, out of Lloyds' current share price of 91p, would have the stock trading ex-rights at 66p, according to Evolution -- 8 times forecast 2011 earnings and 0.8 times price/tangible net asset value (tNAV). That compares with 10 times 2011 P/E and 1.5 times price/tNAV for the European sector.

SELL ON MULTIPLE RISKS

Risks remain high for Lloyds, not least a slower than expected or W-shaped economic recovery, the prospect of an EU antitrust ruling that would require major asset sales, and the possibility regulators will view an APS exit as too great a risk.

Analysts see a combination of loan losses and dilution eating into Lloyds' shareholder returns.

There is also uncertainty over the future shape of the group, with speculation over the EU's possible ruling stretching to branch divestments from the Halifax network.

"The risk of being required to downsize for reasons of competition or state aid is real and may not be positive for valuation, if Lloyds has to sell within a given timeframe," said analysts at Morgan Stanley, who have an "equal weight" rating.

Simon Maughan at brokerage MF Global, who has a "neutral" rating on the stock, said: "If you compare this stock to its nearest best alternative investment, which is Barclays , what is going to happen to net profit at Lloyds to compensate you for an over 80 percent increase in the number of shares?

"It is just exceptionally unlikely that net profit at Lloyds can grow so quickly that you can get over that dilution."

tabasco - 21 Oct 2009 08:35 - 1190 of 1197
Ftse uplloy downits a banker home win every day

You are well wrong LLOY +0.34p is UP FTSE is down 8 points

Masterjust a little adviceyou dont get paid out on fixed odds until the resultmost important thisI make it 76 minsseeing as you wont guess at futures by your own admissionbit of a silly post?I fink youre well rongg too

The Master was driving along and saw a nun on the side of the road he stopped and offered hera lift which she accepted She got in and crossed her legs.. forcing her gown to open and reveal a lovely leg The Master had a look and nearly had an accidentAfter controlling his Mondeo he stealthily slid his hand up her leg
The nun looked at him and immediately said "Master remember psalm 129?"
The Master was flustered and apologised profusely He forced himself to remove his hand Howeverhe was unable to remove his eyes from her leg
Further on while changing gear he let his hand slide up her leg again.
The nun once again said "Master remember psalm 129?"
Once again the Master apologised. "Sorry sister butthe flesh is weak"
Arriving at the convent the nun asked the master to meet her in the parkembarrassed he declinedshe got out gave him a meaningful glance and went on her way On his arrival at the Chinese restaurant the Masterrushed to retrieve a bible from his jacket pocket and looked up psalm 129... It said "Go forth andseek further up.. you will find glory."
Moral of the story:
Always be well informed in your jobor the red hot chilli pepper will steal your gloryfirst lesson when asked to meet nun in parkmake sure you park meat in nun

bloody hell, you guys ... this is getting even worse than the Gaza Conflict thread .... can't we get a sense of sense to prevail??

by the way, no one has yet explained _ no surpise i guess - why Palestinians are deemed to be liars, and thus why by omission, Jews, Methodists, Calvinists, Catholics, Rosacrucians etc are not

cynic
your vocabulary and knowledge of such is far greater than mine, and probably most on here also, you appear to be comparing religious and spiritual beliefs with nationality.
perhaps a more appropriate comparison when asking why Palestinians are deemed to be liars might be to compare to other nationals i.e Brits, French, Danes, Swiss etc.
personally i dont see what their religion or spiritual beliefs have to do with it.
the "and thus why by omission" may or may not be a red herring introduced by you.
maybe you have a bee about it for some reason?
just tryiing to understand.
anyway, as always just my opinion and please all dyor.
kind regards to you
jkd
edit i agree with you. just cant agree with the argument that you have put forward.

if you read back, you would understand why my question, though yes i take your point

What a load of childish puerile crap... act your age! Try not to constantly be an attention seeker give some sensible adult and knowledgable advice or bugger off.

Banks - LLOY is UP the rest down with the market

FTSE well down by 70 points on the red

Intraday
               
1 month
               

Qataris supposedly interested into buying into rights, also Goldman saying yesterday they have $3.4 billion earmarked for commercial real estate, some of which will be UK I seem to remember

They are motoring now 94p +2.50p, as WALL Street is moving into positive territory and the FTSE is slightly recovering earlier losses.

Lloyds in focus amid talk Qataris will buy into rights issue
By Deborah Hyde | 13:08:22 | 22 October 2009

Shares in Lloyds found support in an otherwise lacklustre morning session as traders noted reports that the Qatari sovereign wealth fund might be readying to buy into the banks rights issue.

At 12:45, Lloyds shares were up 0.2p at 91.18p.

'I'm hearing talk that the Qataris sold their stake in Barclays to get involved in this, as opposed to Sainsbury,' said one trader.

Others said the market was awash with talk that Lloyds' bankers have established terms for the planned rights issue.

We're hearing the terms have been set at 6 for 10 at a discounted price of 38p,' said one. Others said they had heard the same terms, saying the rights issue would raise 15 billion for the banking group

The comments come after reports in the newspapers that Lloyds has finalised terms for the rights issue and will announce them next week - as long as it can get approval from the Treasury and the regulator.

The Financial Times said Darling will exact a high price if the bank uses the proceeds to avoid insuring any loans under the government's Asset Protection Scheme.

The paper said Darling has made it clear the government which owns a stake could block the decision if it so chooses and will use that threat to force Lloyds to honour its commitments on lending and show restraint on bonus payments.

        END-OF-DAY MARKET REPORT

Among the banks, only Lloyds made any progress, the biggest riser on the FTSE100, up 3.3p at 94.8p, spurred on by reports it is close to agreement on avoiding the Government's asset protection programme.

Forgive me if I'm being dense but surely if there are 27161 million shares in issue and I create 6 new shares for every 10 already in issue then this would equate to issuing 16296.6 million new shares which if I sell at 38p would net me 6.192708 billion not 15billion?
To raise the mooted 15 billion it would require me to sell 16296.6million shares at 92p. Can someone help with the maths on this? as I'm confused how this would work.

Just out of interest I looked for the article which can be found at http://www.citywire.co.uk/personal/-/news/markets-companies-and-funds/content.aspx?ID=363727.

As you can see it doesn't mention the price of 38p.

Always do your own research.

omg rsi got it right .... 1 day in ten .... respect , lol

What we knew for some time, recession is over at least a couple month back, but is counted by Quaters..........


From the BBC

UK expected to exit its recession

Retail sales were flat in September, which will not help overall growth
Figures due later on Friday are expected to show that the UK economy grew slightly from July to September, meaning the recession is over.

The figure for Gross Domestic Product (GDP) from the Office for National Statistics (ONS) is likely to show the first economic growth since early 2008.

But analysts have said the result will be close and that the economy may even have continued to contract.

GDP measures the total amount of goods and services produced by a country.

The figure at 0930 BST is expected to show growth of between zero and 0.2%.

The UK economy has been contracting for at least the last five quarters, from the beginning of April 2008 until the end of June 2009.............

Daily MAIL

MARKET REPORT: Rights rumours see Lloyds leap

The broker says there could be gold at the end of the rainbow. After all the fundraising has been done,
Lloyds will emerge as the largest distributor of banking services in the UK and the largest mortgage bank in Europe.

Home loans should be an extremely profitable business, capable of generating 25 per cent plus return
on equity across the cycle. In a 'Lloyds as is today' valuation, Evolution's target price would be 165p.

Lloyds, L&G seen in real estate talks
Fri Oct 23, 2009 4:02pm BST

LONDON (Reuters) - The real estate arm of insurer Legal & General is in talks to cherry-pick troubled assets from Lloyds Banking Group Plc in deals that could generate hundreds of millions of pounds for the lender, sources close to discussions told Reuters.

Legal & General Property is weighing potential joint ventures and acquisitions of some of Lloyds' moderately distressed real estate assets, as cash continues to roll into its open-ended funds, the sources said.

Bill Hughes, Legal & General's property head, declined to confirm the talks with Lloyds, but said his team was talking to several banking organizations with a view to helping them lighten their property burdens.

"The banks need long-term investors with free capital, who can get their heads round complex deals and have first-rate property skills in house," Hughes told Reuters in an interview.

"They are clearly willing to spend time with organizations that they believe they can work with," he said.

Lloyds declined to comment on the talks. Its shares were trading 3.6 percent up at 98.2 pence by 3:53 p.m., while Legal & General gained 0.3 percent to trade at 85.5 pence.

From MAIL online

Market report - 24th October 2009

Awaiting its imminent mega fundraising, 43 per cent government-owned bank Lloyds Banking Group added 1.44p further to 96.24p after touching 1. UBS considers Lloyds to be at least 50 per cent undervalued based on expected 2012 normalised earnings. Royal Bank of Scotland, 73 per cent owned by the British taxpayer, firmed 1.53 to 47.04p in sympathy.
Read more: http://www.dailymail.co.uk/money/article-1222587/MARKET-REPORT-Hardy-Oil-dries-investors.html#ixzz0UoFjCbKK
----------

Banks were in demand following a bullish note from UBS's John-Paul Crutchley. He said: "The outlook for UK banks into 2010 looks significantly rosier than was the case at the beginning of the year." Royal Bank of Scotland rose 1 to 47p.

Lloyds Banking Group, though, was Mr Crutchley's top pick despite rumours that the price of borrowing to short the stock ahead the group's expected rights issue had risen to more than 300 basis points.

"We consider Lloyds Banking Group to be at least 50pc undervalued, based on expected 2012 normalised earnings," Mr Crutchley said. The shares ticked up 1.4 to 96.2p.

http://www.telegraph.co.uk/finance/markets/marketreport/6418856/Chaucer-sees-Pamplona-take-a-larger-stake.html