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Less PPI pain and stable margins suit Lloyds

The banking group enjoyed a substantial uplift in its pre-tax profit as PPI provisions decreased
February 22, 2017

In a sector dealing with legacy issues and increasing competition, even a moderately good set of results from a banking group can generate excitement among investors. For Lloyds Banking (LLOY), an uplift across most of its key metrics, and another special dividend, meant a healthy share price bump.

IC TIP: Buy at 69.2p

A substantial reduction in provisions for payment protection insurance - which, at £1bn, were a quarter of 2015's figure - was the main contributor to the uplift in statutory pre-tax profit. Underlying income was 3 per cent lower at £7.9bn as lower costs couldn't offset higher impairments and lower net interest income. The latter was down almost a fifth to £9.3bn, as the bank defended its retail margins in a competitive, and still low-rate, mortgage market.

This effort, coupled with lower deposit and wholesale funding costs, ensured the net interest margin grew eight basis points to 2.71 per cent. But it also meant that retail banking suffered a dip in total income. Commercial banking put in a better performance, increasing its net interest income by 6 per cent and its net interest margin by 28 basis points thanks to higher-quality deposit growth and reduced funding costs.

Analysts at Shore Capital expect adjusted net tangible assets of 57.8p a share at end-December 2017, up from 54.8p a year earlier.

 

LLOYDS BANKING (LLOY)

ORD PRICE:69.2pMARKET VALUE:£49.4bn
TOUCH:69.16-69.2p12-MONTH HIGH:74pLOW: 47p
DIVIDEND YIELD:3.7%PE RATIO:24
NET ASSET VALUE:60pLEVERAGE:20.2

Year to 31 DecTotal operating income (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)*
201238.9-0.61-2.1nil
201338.00.42-1.2nil
201429.91.761.70.75
201523.21.640.82.25
201639.64.242.92.55
% change+71+158+263+13

Ex-div: 6 Apr

Payment: 16 May

*Excludes special dividends of 0.5p a share in 2015 and 2016