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Lloyds remains on course

The retail banking major incurred further conduct provisions during the first half
July 27, 2017

Another Groundhog Day for Lloyds (LLOY). The banking group incurred a further £1.05bn in provisions for past mis-selling of payment protection insurance during the first six months of the year. That included an additional £700m taken for the second quarter, due to claims levels eclipsing management’s expectations. The group also took an additional £540m provision for other conduct charges, including the cost of reimbursing customers previously charged mortgage arrears fees.

IC TIP: Buy at 67.08p

But there was still plenty for shareholders to be pleased about in these results. Lower wholesale funding and deposit costs more than offset reduced lending rates. Coupled with the acquisition of credit card business MBNA, this helped lift the banking net interest margin to 2.82 per cent, from 2.74 per cent. Management now expects a full-year net interest margin closer to 2.85 per cent.

The inclusion of MBNA also helped lift net interest income for the retail business slightly. Further cost reductions and an improved net interest margin pushed underlying profits up 3 per cent to £1.6bn. However, the top performer was commercial banking. Net interest income was up 9 per cent to £1.4bn, helped by demand for hedging and refinancing transactions from mid-market and global corporate clients.

Analysts at Investec expect net tangible assets of 57.7p a share at end-December, up from 54.8p a year before.

LLOYDS BANKING GROUP (LLOY)  
ORD PRICE:67.08pMARKET VALUE:£ 48.2bn
TOUCH:67.07-67.09p12-MONTH HIGH:74pLOW: 50p
DIVIDEND YIELD*:4.0%PE RATIO:26
NET ASSET VALUE: 59pLEVERAGE:21.0
Half-year to 30 JunTotal operating income (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201618.42.452.30.85
201717.32.5421
% change-6+4-13+18
Ex-div:10 Aug   
Payment:27 Sep   
*Excludes special dividend of 0.5p a share in respect of 2016