Financial Trading Blog

Stock of the day 30/07/2015 – Lloyds Banking Group PLC




The bank had a bit of a limp 2014, entering 2015 at £0.76 after starting the previous year at £0.79. However, after struggling to gain much momentum across January Lloyds has turned it up a gear, helped, admittedly, by some factors outside of its direct control. February bought a £500 million share sale by the government, taking its stake in Lloyds to less than 24%; combine this with the announcement of full year results at the end of the month, with statutory profits of £1.8 billion and, more importantly, a (tiny) dividend of 0.75p per share, notable for being the first since the crisis in ’08, and the stock was lifted to £0.81 by the start of March.

Lloyds Banking Group Chart July 2015
(Source: IT-Finance.com 30/07/2015)

Things trickled off slightly across March and April, and by the end of the latter month the bank was back down to £0.77. May 1st saw Lloyds reveal its first quarter figures, and despite posting 21% growth in underlying profits to £2.178 billion it couldn’t avoid an 11% slide in statutory profit before tax to £1.214 billion, the decline caused by the costs of the TSB sale to Banco Sabadell. However, much like with its fourth quarter results, the promise of a half- and full-year dividend impressed investors, and with an increasingly healthy outlook the bank’s shares soared 7% in a single day.

Cut to a week later and Lloyds got some more good news, with the Tory election victory causing another market-surge, eventually lifting the stock to a 6 year high of £0.90 by the middle of May. This post-election growth was aided by the sale of another £500 million worth of Lloyds shares, meaning the bank had returned £10 billion of its £20 billion in bailout cash to the taxpayer, with Osborne promising to sell another £9 billion worth in the next 12 months.

The bank managed to hover around these highs until the end of May; June 5th, however, saw Lloyds hit with another £117 million fine for the unfair mishandling of PPI claims, with the FCA report showing the bank rejected 37% of the 2.3 million PPI policy complaints. This helped carry Lloyds away from its May highs, and by the start of July its price was closer to £0.86 than £0.90. The week before that exhausting weekend-long EU summit that eventually yielded a Greek deal saw Lloyds tumble along with the rest of the sector, causing the bank to hit £0.82, its worst price since the UK election.

After that deal was announced Lloyds managed to climb back to £0.88, but news last week that a) the government may have to abandon its plans to sell-off its remaining stake in the bank due to the speed in which the shares are being sold off and b) the bank may have to put aside another £1 billion in provisions for further PPI fines caused a tumble. This decline, however, has been partially recovered since then, and the boisterous results from Barclays and RBS, alongside the news that Lloyds has sold a portfolio of Irish commercial loans for £827 million, has taken it to a current trading price of £0.86 (IT-Finance.com, 30/07/2015).

In terms of its second quarter results, the figures aren’t as likely to wow as those from the past 2 quarters. Adjusted earnings per share are expected to fall to £0.02 from £0.029, whilst sales are set to slip from £4.723 billion to £4.57 billion. These declines, however, could be mitigated if the predicted increase in pre-tax profit to £1.458 billion from a £506 million loss year-on-year proves to be accurate. Lloyds Banking Group has a consensus rating of ‘hold’ with an average target price of £0.9228.


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