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

After impressive releases from Barclays and RBS so far this week, the pressure is on for Lloyds to perform with its half year results on Friday.

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.


(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.