Stock of the day 30/04/2015 – Lloyds Banking Group PLC

In the tale of the two taxpayer-held UK banks, Lloyds Banking Group has fared much better than the Royal Bank of Scotland, a trend that is likely to continue when it announces its Q1 2015 interim management statement on Friday.

After significant gains in 2012 and 2013, 2014 was a disappointment for Lloyds, and 2015 is looking just as mixed. The bank started last year at £0.79 and by the New Year was trading lower at £0.76; by the middle of January, Lloyds slumped with the rest of the markets and hit £0.73, its worst price since the previous October. However, things had begun to pick up in February after strong annual results, culminating in it reaching £0.82 at the start of March, a 12 month high for the stock. Sadly this investor goodwill wasn’t to last, and Lloyds is now trading at £0.77.


(Source: IT-Finance.com 30/04/2015)

This week has seen Barclays put aside another £950 million in provisions for the PPI and forex scandals, with Royal Bank of Scotland posting £446 million in losses for the first quarter due to its own fines, charges and restructuring costs. These scandals are still very much part of the current banking landscape, as Lloyds knows better than most. The bank received a pretty hefty slap on the wrist for the PPI scandal, with its £12 billion in fines eclipsing the other banks involved. Understandably, investors will be looking at signs of more pay-outs, especially after Barclays’ extra-provisions announcement, with reports suggesting that Lloyds will set aside a further £500 million to cover the continuing PPI problems.

Beyond the perpetual cycle of scandal-driven pay-outs, the upcoming UK election will be of significant consequence for Lloyds. Since 20(ish)% of the bank is still owned by the taxpayer, the process of selling these shares will likely be different depending on who is in charge. Investors will be also looking for clarification surrounding Lloyds’ remaining stake in TSB, which was recently sold to Sabadell; namely, if, when and how Lloyds intends to dispose of its position in its spin-off.

In terms of the figures we are likely to see on Friday, afters its 26% rise in profits to £7.8 billion in 2014, aided by saving £2 billion a year through its latest cost cutting programme, analysts are expecting a 16% increase in quarterly profits to £2.1 billion. Given the mixture of profits success and provisions nightmare, analysts have Lloyds Banking Group at a consensus rating of ‘hold’ and the average target price of £0.86.