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Lloyds Banking Group PLC LLOY

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Lloyds Comfortably Beats Consensus Estimates and Improves NIM Guidance; Raise FVE to GBX 68

Niklas Kammer, CFA Equity Analyst

Analyst Note

| Niklas Kammer, CFA |

Narrow-moat Lloyds reported third-quarter statutory profit before tax of GBP 2.03 billion, comfortably beating consensus estimates collected by Lloyds of GBP 1.35 billion. Overall, the performance was good. Compared with the second quarter this year, net interest income increased 4% to GBP 2.85 billion. The net interest margin for the banking business increased to 255 basis points from 251 basis points last quarter. The structural hedge contributed positively (1 basis point) to the margin and given the current yield curve, is expected to continue to do so. As a result, Lloyds now guides for a net interest margin modestly above 250 basis points for the full year, having logged 252 basis points year to date. Operating costs were flat while loan losses remain benign, outperforming our expectations. Lloyds posted the third consecutive quarter of net loan-loss reversals. This allowed Lloyds to lower its guidance from below 10 basis points in loan losses to a net reversal for the full year. We revised our model based on third-quarter results, slightly updated guidance, as well as the improving interest rate outlook in the U.K. in the near term. This lifts our fair value estimate to GBX 68 per share from GBX 62 previously. Shares are undervalued.

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Company Profile

Business Description

Lloyds is a retail and commercial bank headquartered in the United Kingdom. The bank operates via three business segments: retail, commercial banking, and insurance and wealth. In retail, Lloyds offers primarily mortgages (66% of loan portfolio), credit cards, and current accounts to its customers. Its commercial banking operation provides lending, transaction banking, working capital management, and debt capital market services to large corporates and financial institutions in the U.K. Insurance and wealth rounds out the product lineup with life and property insurance as well as pension solutions and high-net-worth asset-management services.

25 Gresham Street
London, EC2V 7HN, United Kingdom
T +44 2073562104
Sector Financial Services
Industry Banks - Regional
Most Recent Earnings Jun 30, 2008
Fiscal Year End Dec 31, 2021
Stock Type
Employees 61,576