Why Lloyds Bank will not outperform ahead of snap election - By Lee Wild | Wed, 19th April 2017 - 12:57

Just a week before Lloyds Banking Group (LLOY) publishes first-quarter results, one broker has spelled out what it expects the high street lender to reveal on 27 April. But there's also reason to believe the shares will struggle to shine over the next few months.

"Lloyds has underperformed the bank sector 6% in the last month (though still 1% up year-to-date)," writes Deutsche Bank analyst David Lock. "We have upside to our target price, but we do not expect the shares to outperform whilst UK macro and political uncertainties persist.

"Though Lloyds looks cheap on 2017 price/earnings (PE), unlike most other banks in Europe the PE rises in future years rather than falls," Lock explains.

His assessment comes a day after Prime Minister Theresa May called a snap election for 8 June, already being billed as a second EU referendum, and as Lloyds is reported to be ready to convert its Berlin offices into a post-Brexit European HQ.


At 63.4p, up around 2% Wednesday at a two-week high, Lloyds shares trade on 9.6 times Deutsche's earnings per share (EPS) estimates for 2018 of 6.6p. Tangible net asset value is 1.1 times for a return on tangible equity of 12%, and the forward dividend yield is 6.5-8% for 2017-2019.

To value Lloyds shares, Deutsche uses an average of its sum-of-the-parts (Sotp) calculation and dividend-discount-model (DDM). Assuming a cost of equity of 9% and a growth rate of 1%, the broker trims its target price by 6% from 70p to 66p.

That's blamed largely on recent dividends – Lloyds just paid a final ordinary dividend of 1.7p per share and a special payout of 0.5p - and on lower Sotp multiples.

Back to the numbers, and Lock keeps first-quarter estimates unchanged, forecasting underlying profit before tax of £1.85 billion, down from £2.05 billion a year ago, but up from £1.79 billion in the final three months of 2016.

Expect income to have fallen around 1% quarter-on-quarter, costs to remain flat and impairments nudging higher by a "modest" £29 million to £225 million. That final figure could spring another positive surprise, reckons Lock, given "robust macro" during the period.

As ever, it's net interest margin (NIM), a key performance indicator for the banking sector, and net interest income (NII) that investors will be eyeing closely. Lock tips an improvement in the former to 2.71% for the quarter.

However, this time it will be important for Lloyds to deliver NII rather than NIM progression, which Lock says "likely requires volume and AIEA stability".

He urges investors to watch for deductions to Banking NII following an increase during the fourth quarter of 2016 to £119 million.

Elsewhere, Deutsche pencils in £1.46 billion of "other income", a potentially lumpy figure about flat year-on-year, but down quarter-on-quarter. Its common equity tier One (CET1) ratio is seen at 13.9% - this includes the 20 basis points (bps) of insurance dividend paid in February, but is before the 80bps MBNA purchase impact.

While Deutsche is unconvinced Lloyds will do any better than peers right now, it is worth noting that there does at least seem strong technical support at around 62p.

Perchance to dream (Sic).

Is Lloyds Banking Group plc about to offer a 10% dividend yield?

Q1 2017 Interim Management Statement


Strong underlying performance with significant improvement in statutory profit and returns
· Increase in underlying profit to £2.1 billion with an underlying return on tangible equity of 15.1 per cent
· Positive operating jaws while credit quality remains strong with asset quality ratio of 12 basis points
· Statutory profit before tax increased to £1.3 billion; statutory return on tangible equity of 8.8 per cent
· Strong balance sheet maintained with CET1 ratio of 14.5 per cent (pre dividend accrual)
· Tangible net assets per share increased to 56.5 pence driven by strong underlying profit

Our differentiated UK focused business model continues to deliver
· Simple, efficient and low risk business model providing competitive advantage
· Strong capital generation of 0.7 percentage points
· UK government shareholding now below 2 per cent

On track to deliver the Group financial targets for 2017 with longer term guidance maintained
· Net interest margin for the year now expected to be close to 2.80 per cent (pre MBNA)
· Expect open book mortgage balances to stabilise and then grow to close the year in line with 31 December 2016
· Asset quality ratio for the year now expected to be inside existing 25 basis points guidance (pre MBNA)
· Expect 2017 capital generation to be at the top end of the 170-200 basis points ongoing guidance range
· Continue to target a cost:income ratio of around 45 per cent exiting 2019 with reductions every year
· Expect to generate a statutory return on tangible equity of between 13.5 and 15.0 per cent in 2019


more.....

100p by xmas :-)

Hopefully HMG can now dump the remainder of their holding.

Investec comment today:
"Lloyds’ investors are waking up to a (pretty glorious) reality...the Q1 IMS has delivered a consensus beat on NIM (2.80% vs 2.70%), costs (at £2.0bn, a £6m beat), impairments (£127m (12bps) – a 48% beat) and CET1 capital (14.3% vs 13.8%). In aggregate, underlying PBT (£2.1bn) is 4% ahead of us (£2.0bn) and 10% ahead of company-compiled consensus (£1.9bn). Sellside humiliation is not yet complete, (24 April), further material impairment/NIM/DPS-led consensus upgrades seem inevitable. BUY.
CET1 capital rises 50bps to 14.3%. Consensus inexplicably forecast £1.0bn of retained earnings yet had no CET1 growth. FY17 capital accretion guidance is raised to the “top end” of the 170-200bps range. We expect DPS forecasts to rise. We already forecast 4.5p in 2017e vs consensus (so far) up to 3.8p.

On 1.2x 2016 tNAV, Buy recommendation and 74p TP reaffirmed. Only the finer detail of our forecasts is now under review.

RBC comment:
"LLOY results beat on NII and provisions, and the rest of the results were in line. Guidance was upgraded on NIM, cost of risk and capital generation, which should be received well by the market. We rate LLOY Outperform, 90p price target, currently trading at 1.19x latest TBV and targeting a 13.5-15% ROTE in 2019."

An obstacle for Lloyds Bank despite stellar Q1

Government just gone below 1% only 689,000 left to sell .

Barclays Capital Overweight 68.70 - 77.00 Reiterates

Lloyds Bank could deliver big returns after new upgrades

that would be nice ...... it's the only banking share i hold (sipp)

There have been strong headwinds with the Govt selling circa 50M a day. That should be done with before the end of the month, then a level playing field at last.

Citigroup Sell 69.27 55.00 63.00 Reiterates

HSBC Buy 69.27 75.00 76.00 Reiterates

Barclays Capital Overweight 69.27 77.00 77.00 Reiterates

Blimey!.....70p....at last!

Macquarie today reaffirms its neutral investment rating on Lloyds Banking Group PLC ORD (LON:LLOY) and raised its price target to 67p (from 65p).

Berenberg Sell 68.35 55.00 55.00 Reiterates

I'm hearing Woodford likes Lloyds and is buying in .

From where?

On interactive investor .