Lloyds Banking Group PLC (LLOY) reported continuing strong operating progress in its Interim (H1-17) results back on 27 July, with all key business metrics continuing to improve. Guidance for the full year Net Interest Margin (NIM) was raised to 2.85% (2.7% in FY-16) and LLOY expects 2017’s Tier One Capital generation (CET1) to be at the top end of the 170-200 bps improvement range. Importantly, LLOY is positively geared into a gently rising UK interest rate environment (perhaps 25 bps in Nov-17 followed by 25 bps in May-18) as the economy warms. This is a profile we like and should provide near-term upside potential. Buy
Lloyds reported another strong trading period during H1-17, with growth across all key banking metrics contributing to a 16.6% (15.1%) Return on Tangible Equity (RoTE) in the period. This metric determines the overall health of LLOY and there is further upside in this metric we believe, which will continue to drive the share price higher.
Lloyds has three key priorities; Improving the Customer Experience (multi-channel, digital bank with 21% market share), Improving Customer Journeys (e.g. mortgage approval times) and thirdly, Delivering Sustainable Growth in key business areas. As these priorities progress, LLOY’s profitability should also progress.
Lloyds’ results confirmed that the bank remains very well positioned in its key UK market from all business perspectives. Full year 2017 earnings expectations are for around 8p per share, which put on an undemanding multiple of 10x, gives us our target price of 80p per share. Looking at the dividend, LLOY raised its interim dividend by some 18% to 1p per share, which reflects the management team’s optimism for the future health and profitability of the Lloyds Banking Group. In the context of the overall banking sector, LLOY represents a safe pair of hands, yielding around 5%. Buy