Lloyd's Earnings: Time for a Catch-up?

Lloyds has been slower to recover than the rest of the UK’s major banks. Does that mean there is more growth ahead?

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Sticking with the pack

Unlike competitor banks, Lloyds has had a slower rebound over the last year. Primarily this has been because the bank has been reluctant to release the provisions it built up during the pandemic. In fact, Q3 was the first time it had a provision release, unlike Barclays and NatWest, which started releasing in Q1.

Part of that might have to do with Lloyds simply being more cautious, but it also might have to do with the bank's traditional model, which has left it falling behind its counterparts. The arrival of online banking has proven to be a bit of a challenge for the more conventional lender. Most recently, it has started to diversify through acquiring an online presence. However, it lacks internal development, despite the CEO's pledge at the end of last year to diversify away from retail banking.

There's a brighter future

The cautious approach taken during the pandemic has left it with extra resources, which has led to speculation that it might announce a £1.0B stock buyback program during earnings. That could give the stock a substantial boost. Or management could choose to recommend a more significant dividend.

Last quarter, Lloyds reported a return on tangible equity higher than guided, and if that trend were to continue through the second quarter, it could boost the stock post-earnings. But many investors could be looking closely at the outlook to see if management raises guidance to match recent performance. If not, it could be read as a lack of confidence in growth potential. Particularly considering that Lloyd's reliance on retail would imply higher revenues with higher interest rates going forward.

LYG toying with 50p

Lloyds stock price recently peaked at 56p and found a base near 49. The price action this year has seen the shares rise above and then pullback to a long-term downtrend line that has been in place since 2016.

The first major support lies at the 200-week moving average, near 48. Below there, support comes at the Dec 16 swing low at 44.50.

Interim resistance is this year’s high above 55. Above that, strong resistance can be observed at around 64, but the 60 round number could be a target for institutional investors.

Source: Spreadex trading platform

Key takeaways

Lloyds has been building excess capital due to its more cautious approach to releasing provisions.

If the bank announces a share buyback program and the outlook matches expectations or receives a boost, LLOY will likely see a substantial lift. If the bank announces a dividend payout instead, investors might be slightly less generous but cheerful overall.

Should Lloyds fail to meet expectations or guidance does not match the bank’s recent performance, pressure will be more evident in the stock price.