UK Government Reduces Lloyds Stake To Less Than 25 Percent

Lloyds financials summary

UK Financial Investments is the name of the financial firm created by the UK government during the 2008 financial crisis. UKFI took significant stakes in several UK banks, including Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY), during the crisis. Over the last year or two, UKFI has been gradually selling off its stakes in the banks, including it controlling stake in Lloyds.

UKFI and Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY) announced today that the government firm has sold another 7.5% of its stake in Lloyds, leaving it it with less than 25% interest in the venerable banking firm.

Investec’s take on UKFI selling more Lloyds stake

Equities research firm Investec published a report today, March 26th, highlighting Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY) as a Buy and discussing the UK government’s sales of another tranche of its position. “UKFI has moved more quickly and in slightly larger size than we expected, reducing its residual stake from 32.7% to 24.9%. It has completed a placing of 5.56 bn shares (7.8%) at 75.5p–a 5% discount to last night’s close (79.1p).”

UKFI sale impact on share price

Investecs analysts point out that although the stock price dropped appreciably the last time the UKFI sold a chunk if its stake, that is not likely to happen this time around. “Today, we see the near-term outlook for the group as very different. Despite a similar share price, and lower levels of Other Income, (a function of the aforementioned business disposals), the group has already returned to delivering core balance sheet growth–notably in mortgages and the SME segment–augmented by sharp margin expansion; the Net Interest Margin recovered from 1.96% in Q1 2013 to 2.29% in Q4 2013.”

Lloyds rated a Buy with a price target of 85 p.

The Investec report concludes with a reiteration of their Buy rating and a price target of 85 p. “Trading on 1.5x 2014e tNAV, 10.1x 2016e EPS and with a prospective 2016e dividend yield of 5.7%, we believe that Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY) offers reasonable upside for a relatively low-risk stock. Buy rec and 85p RoE-g/CoE-g derived target price reaffirmed. Key risks include any UK economic slowdown.”

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