Lloyds Banking – Gloss Comes Off of Dividend Hope Story

The Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) earnings report from Joseph Dickerson of Jefferies below.

The Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY)  pre-announcement of £6.2bn underlying PBT misses our £6.4bn estimate. £1.9bn of PPI/conduct costs drives de minimis statutory PBT. Dividend discussions with regulator won’t start until H2 14, consistent with our view and “modest” pay-out disappoints. Our price target is 69p.

 

LLOY has pre-announced FY 13 results this morning. “Underlying” PBT of £6.2bn compares with our £6.4bn estimate and the consensus of £5.8bn. The beat relative to consensus is likely a mix of income growth (core loans grew 3% in FY 13) and better than expected impairments. As a result of a further £1.8bn of PPI provisions (FY ’13 total of £3.05bn) and £130m for interest rate hedging charges, the group now expects a “small” statutory profit before tax vs the £2.7bn est. Based on this, we would expect a small statutory loss after tax.

 

Dividend timing and size disappoint. The Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) has announced that it intends to apply to the PRA in H2 14 to restart dividend payments at a “modest level” and expects progressive policy moving to a payout ratio of at least 50% over time. The timing of dividend payouts is consistent with our long-held views regarding repatriation of capital for LLOY. The “modest level” is disappointing to us as we had factored in a 40% pay-out in 2015, which looks optimistic in light of today’s announcement. We would not expect a >50% pay-out until 2018 at best.

 

Franchise indicators ok. The NIM for FY13 is expected to be 2.12%, compared with company guidance of 2.11% and our expectation for 2.18%. Core loan growth of 3% looks about 100bps ahead of our estimate. Fully loaded core capital ratio = 10.3% versus our estimate of 10.5%.

 

Group preparing “certain documents” (eg prospectus) for sale of part of HMT’s The Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY)  stake to public.

 

We rate LLOY at HOLD with a 69p target. Current 1.4x 2015 P/TBV multiple looks rich against sector multiple of 1.0x.

For exclusive info on hedge funds and the latest news from value investing world at only a few dollars a month check out ValueWalk Premium right here.

Multiple people interested? Check out our new corporate plan right here (We are currently offering a major discount)






About the Author

Sheeraz Raza
Sheeraz is our COO (Chief - Operations), his primary duty is curating and editing of ValueWalk. He is main reason behind the rapid growth of the business. Sheeraz previously ran a taxation firm. He is an expert in technology, he has over 5.5 years of design, development and roll-out experience for SEO and SEM. - Email: sraza(at)valuewalk.com

Be the first to comment on "Lloyds Banking – Gloss Comes Off of Dividend Hope Story"

Leave a comment