Exceeding its 2018 capital generation target enabled Lloyds (LLOY) to recommend a consensus-beating £1.75bn share buyback and further raise the annual dividend. The lender also improved guidance on costs, anticipating operating costs of below £8bn for 2019 – a year ahead of target – and a cost-to-income ratio in the low 40s by the end of 2020.
Negative trading income weighed on statutory figures, but underlying pre-tax profits rose 13 per cent to £4.4bn. Provisions for historic mis-selling of payment protection insurance were down more than half on the prior year at £750m, incurring £200m during the fourth quarter. Impairments rose slightly from 0.18 per cent to 0.21 per cent of loans and customers, following lower write-backs and releases. Still, the return on tangible equity increased 2.8 percentage points to 11.7 per cent.
Bucking the wider market trend, the retail banking net interest margin improved by 8 basis points to 2.68 per cent as the benefits of a full-year’s ownership of MBNA offset continued mortgage margin pressure, encouraging given its higher-yielding back-book of mortgages continued to run-off, declining 10 per cent. Together with a 6 per cent improvement on costs, that pushed up underlying pre-tax profits for its core business by 13 per cent to £4.3bn.
The commercial banking division had a tougher time, with volatile markets leading to lower client activity. Without 2017’s significant number of refinancing and hedging activities by clients, net income was down 2 per cent and led to a 3 per cent reduction in underlying pre-tax profits.
Analysts at Investec expect adjusted net tangible assets of 54.9p a share at the December 2019 year-end, up from 53p in the prior year.
| LLOYDS BANKING (LLOY) | ||||
| ORD PRICE: | 60p | MARKET VALUE: | £42.7bn | |
| TOUCH: | 59.99-60.01p | 12-MONTH HIGH: | 70p | LOW: 50p |
| DIVIDEND YIELD: | 5.4% | PE RATIO: | 75 | |
| NET ASSET VALUE: | 70p | LEVERAGE: | 19.8 | |
| Year to 31 Dec | Total operating income (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 29.9 | 1.76 | 1.70 | 0.75 |
| 2015 | 23.2 | 1.64 | 0.80 | 2.25 |
| 2016 | 39.6 | 4.24 | 2.90 | 2.55* |
| 2017 | 34.2 | 5.28 | 4.40 | 3.05 |
| 2018 | 22.1 | 5.96 | 5.50 | 3.21 |
| % change | -35 | +13 | +25 | +5 |
| Ex-div: | 04 Apr | |||
| Payment: | 21 May | |||
| *Excludes special dividend of 0.5p a share in 2016 | ||||
