Resilient earnings

The third-quarter results showed resilient net interest margins and benign asset quality trends, thus enabling the management to target a more than decent 14% RoTE. The expected imminent recovery in house prices, if correct, is good news for the future evolution of the cost of risk.

Confirmed net interest margin reversal

The second quarter results confirmed that the interest rate tailwinds are behind. However, the net interest margin and the asset quality should prove more resilient than expected in 2023, making 2024 the big unknown.

UK Banks - Strong performance continues

Challenges ahead

The first-quarter results came in in line with the guidance and our expectations. However, they confirmed that, from now on, the group will have to fight two enemies at the same time: deposit migration on the one hand and an asset quality deterioration on the other.

Lloyds Banking Group PLC ADR: Initiation of Coverage – Recent Challenges, Key Drivers, Financial Forecasts, DCF & Comparables Valuation, ESG & Other Risks (04/23)

This is our first report on Lloyds Banking Group PLC ADR, one of the largest UK-based retail and commercial banking service providers. Lloyds produced a strong financial performance in 2022 based on the ongoing success of the customer franchise. Its order book is healthy, but the business is nevertheless being negatively impacted by the industry's persistent worldwide supply chain problems. During the year, commercial banking balances have increased, driven by attractive corporate, institutional

Net interest margin warning

The quarterly underlying operating performance proved better than expected. However, the group’s updated guidance is, at best, in line with consensus forecasts as management expects net interest margin pressure as soon as this year.

The dark side of interest rate hikes

While the management reiterated its full-year guidance, the third quarter results confirmed that interest rate increases also have a negative side in the form of negative equity adjustments and a looming asset quality deterioration.

So far so good

The group posted a strong set of results showing faster and stronger-than-expected net interest margin expansion and no signs of a deterioration and above all anxiety on the asset quality front. It remains to be seen if the UK government will allow banks to hold on to the benefit of interest rate increases and if the UK economy proves as resilient as expected.

Upgraded guidance despite asset quality deterioration

The group posted a good set of results characterised by stronger net interest income growth, better cost control and a slower cost of risk normalisation, thus enabling the management to upgrade its full-year RoTE objective to above 11%. On the negative side, asset quality deteriorated markedly, translating into significantly reduced solvency.

Full profitability potential not visible before 2025

The fourth-quarter results were depressed by non-recurring charges. The updated business plan shows that the profitability will remain depressed by investments and legacy charges over the next three years, whereas the full profitability potential will not become visible before 2025 or 2026.

Stronger top-line resilience and provision recoveries

The bottom line largely exceeded expectations driven by the stronger top-line resilience and loan provision recoveries. Although the next quarters could continue to enjoy further provision recoveries, the expected interest rate hikes should support the top-line trajectory.

Facilities by ADF - FY23A Results – Trailer-blazing in pursuit of excellence

ADF released FY23A results in-line with our forecasts and the February trading update. As previously highlighted, H1/23A saw record profits whilst H2/23A was disrupted by the now-resolved strike action. The business is ramping back up at the start of FY24E and returning to normal utilisation in H2/24E. Our newly released FY25E forecasts show that with a full year of business as usual, revenues increase c.20% to £56.8m and Adj PAT jumps c.50% to £7.5m. FCF similarly increases to £7.5m, putting th

Henderson Far East Income - Repositioning to raise total returns

Henderson Far East Income (HFEL) has consistently delivered on its objective to provide a rising dividend. However, like many investors, HFEL’s managers overestimated the potential for a post-pandemic rebound in China. The trust’s resultant overweight to Chinese consumer and other cyclicals led to a fall in portfolio revenues and underperformance in the financial year ended 31 August 2023 (FY23). With a view to improving future returns, HFEL’s board has since indicated an increased willingness t

Bluefield Solar Income Fund – Fundamentals shine despite discount

The manger comments that, in common with the other trusts in the renewable energy sector, the last six months have continued what has been a challenging period for the Bluefield Solar Income Fund (BSIF). It adds that the trust’s ongoing fundamental performance has failed to reverse a steady slide in its share price which began back in May 2023. Despite this, it says the company has continued to deliver solid NAV growth and market-leading shareholder distributions thanks to a range of contractual

LIBERUM: NewRiver: Q4 trading update: Continued operational momentum

The Merchants Trust - UK market is ‘a stock picker’s dream’

The Merchants Trust (MRCH) has been managed by Simon Gergel at Allianz Global Investors for the last 17 years. He describes the valuation backdrop in the UK market as ‘a stock picker’s dream’, as in aggregate, UK stocks are trading at the low end of their 20-year range, and company valuations vary significantly, thereby affording the manager opportunities to identify reasonably priced businesses that have strong fundamentals and are operating in industries with favourable dynamics. Gergel’s stra

Lowland Investment Company - Is the tide turning?

Lowland Investment Company’s (LWI’s) unconstrained, multi-cap investment policy differentiates it from most peers in the AIC UK Equity Income sector. It offers investors broad market exposure, outside of the large, traditional ‘income stocks’ at a 13% discount to NAV. The underperformance of small- and mid-cap companies versus larger peers has slowed and a turnaround would be very positive for LWI. Portfolio returns are already benefiting from acquisition activity, spurred by low valuations, and

Murray Income Trust - Delivering income and capital growth

Murray Income Trust (MUT) invests in high-quality, mainly UK-listed stocks. It has achieved both its dividend and capital growth objectives over the long term. The trust boasts 50 years of continually rising dividends. It paid a dividend of 37.5p per share in FY23 (ended 30 June 2023 (FY22: 36.0p)), and the board has indicated the dividend will rise to at least 38.0p in FY24. This represents a prospective yield of 4.5%. Late last year the company decided to take action to allow shareholders to a

PCI Pal - +25% FY23 revenue growth, FY24 growth of +28% reiterated

PCI Pal’s FY23 results show revenue growth of +25% to £14.9m, gross profit growth of +31% to £13.1m at a margin of 88%, and an outlook confirming robust momentum in H1 24. The FY23 results are as expected following the August trading update, and FY23 Total Annual Contract Value (TACV) is +23% yoy to £16.4m, with ARR +14% yoy to £12.6m due to £3.1m of contracts in deployment. We expect ARR will increase +35% and +31% to £17.0m and £22.2m in FY24 and FY25, as management lands and expands following

Top of the Pops

We reveal the winners of our investment trust ratings for 2024... Our ratings seek to reward closed-ended funds which deliver attractive and persistent performance characteristics in three categories which we think match up to broad goals investors usually have: long-term growth, income and growth, and high current income. This includes strong performance versus a fund’s underlying market, as well as attractive risk characteristics which we think suggests they could continue to be premium optio

LIBERUM: PayPoint* - Growth drivers becoming more powerful

LIBERUM: SAS UK SMID Monthly: Should we expect a rally in retail stocks?

LIBERUM: PayPoint: On track for £100m of EBITDA in FY 26

Record - Underlying growth and pipeline are attractive

In H124, Record posted steady management fee growth of 3% y-o-y to £19.6m as the company benefited from a higher assets under management equivalent (AUME) base. Total revenues, however, were down 3% as performance fees in H123 outweighed those earned in H124. Profit before tax was down 17% y-o-y to £6.3m as Record incurred costs related to its expansion and modernisation initiatives. In line with its progressive dividend policy, Record increased its dividend by 5% y-o-y to 2.15p per share. After

AVI Global Trust

As the data on page 13 shows, AVI Global Trust (AGT) has been outperforming recently. Where it can, the manager seeks to engage with investee companies behind the scenes, working with them with the aim of unlocking value for the benefit of all shareholders. Lately, AGT has also been involved in some more high-profile situations, which are discussed in this note. While the NAV seems to be moving in the right direction, the double discount – AGT’s own discount plus the gap between the share price

finncap: Change of CEO and appointment of new directors

finnCap announced this morning a proposed new CEO and the appointment of new directors. Sam Smith, finnCap’s CEO, has announced her intention to step down from the position and move into an advisory role within the group. John Farrugia, currently Managing Partner of finnCap Cavendish, will become a director of the group and then CEO after Sam Smith steps down.