Tip Update Lloyds Banking Group PLC (uk:LLOY)
Our previous tip
- We said Sell
- When 14 June 2012
- Price 28.64p
- Tip performance to date +2%
A further £1.08bn hit from payment protection insurance claims (PPI) explains
Lloyds' bad debt charge actually fell 42 per cent year-on-year to £3.16bn, helped by chunky reductions in charges at the Irish unit. Despite that, however, and reflecting grim conditions in Ireland, provisions there still represent 28 per cent of Lloyds’ total charge – yet the £12.5bn Irish loan book is dwarfed by the group’s £534bn loan book. The UK retail arm is hardly booming, either. Underlying profit there rose 7 per cent to £1.41bn, driven by a 35 per cent fall in bad debt charges. But underlying income fell 10 per cent amidst weak credit demand.
Lloyd’s net interest margin slipped 19 basis points to 1.93 per cent, reflecting higher wholesale funding costs. Lloyd’s also has a £21.3bn exposure to the eurozone’s five weakest economies – including a chunky £5.6bn exposure to Spain.
Investec Securities expects full-year EPS of 0.3p (2011: 4.1p loss per share).
|LLOYDS BANKING GROUP (LLOY)|
|ORD PRICE:||28.64p||MARKET VALUE:||£20.1bn|
|TOUCH:||28.63-28.65p||12-MONTH HIGH:||45p||LOW: 22p|
|DIVIDEND YIELD:||nil||PE RATIO:||17|
|NET ASSET VALUE:||65p|
|Half-year to 30 Jun||Pre-tax profit (£bn)||Earnings per share (p)||Dividend per share (p)|
SHARE TIP UPDATE
An 11.3 per cent core tier one capital ratio looks robust and the shares are lowly rated priced on 0.5 times net tangible assets. But Ireland is problematic while, with the UK economy contracting, recent credit quality improvements could falter. Added to funding-cost pain and Lloyd’s eurozone exposure, and we reiterate our sell tip (28.1p, 14 June 2012). Sell.