Analyst Note| Niklas Kammer, CFA |
We maintain our GBX 62 per-share fair value estimate for Lloyds after the group reported a good first-quarter 2021. Relative to the more comparable fourth quarter of last year, net income increased 2% to GBP 3.7 billion on flat net interest income but slightly higher other income. Crucially, the net interest margin was resilient despite the low interest-rate environment. Indeed, it increased 3 basis points compared with the last quarter of 2020 as growth in mortgage volumes at attractive margins more than offset the structural hedge headwind. The first quarter constitutes the third consecutive net interest margin improvement, albeit small, since the rate cut by the Bank of England affected second-quarter earnings last year. Operating costs came in at GBP 1.9 billion, in line with last year’s quarterly performance. Loan-loss reversals lead to an income statement credit of GBP 323 million, which lifted return on tangible equity for the quarter to 13.9%. We maintain our narrow moat and stable trend ratings.