Lloyds Banking Group Plc – Showed Resilient Business Model in a Challenging Economic Environment

Lloyds Banking Group Plc (LON: LLOY) is a FTSE 100 listed banking Company, which is engaged in the business of financial and banking services.

On 30 July 2020, the Company will announce the half-year results for FY20.

Recent News
On 6 July 2020, the Company announced the retirement of António Horta-Osório, as a Chief Executive Officer (CEO). Further, the former UK Financial Investments (UKFI) Chairman, Robin Budenberg CBE would become the next Chair. Robin will join the Group Board on 1 October 2020 and take over as Chair in early 2021 when Lord Blackwell steps down from the Board.  

AGM Update (as on 21 May 2020)
The Company’s main purpose is to Help Britain Prosper, and this commitment is currently more important than ever. LLOY announced the acquisition of Tesco Bank's £3.7 billion prime residential mortgage portfolio and accomplished the integration of MBNA. LLOY has a robust balance sheet with strong capital and liquidity position. Also, the Company committed not to declare share buybacks or ordinary dividends until the end of 2020.

Share Price Performance
 
1-Year Chart as at July-08-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Lloyds Banking Group Plc’s shares were trading at GBX 30.62 on 8 July 2020 (before the market close at 1:07 PM GMT+1), down by 0.38% against the last day closing price. Stock 52 week High and Low were GBX 73.66 and GBX 27.12, respectively.

From the technical standpoint, 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology
 


Key Risks
The economic outlook is clearly challenging with the mitigating impact of Government measures in the UK and the longer-term outcome dependent on the severity and length of the pandemic.The impact of lower rates, higher impairment and lower levels of activity will continue into the second quarter of 2020.

Conclusion
The bank’s common equity tier 1 ratio (a key measure of a bank’s financial strength) was 14.2% at 31 March 2020 versus 13.9% a year ago. The trading surplus remained strong with £1,988 million in Q1 FY20. Overall, in 2019, LLOY delivered a solid financial performance with market-leading efficiency.

The Group is supporting the customers from retail, commercial and small business through Government-funded schemes like CCFF (Covid Corporate Financing Facility) and CBILS (Coronavirus Business Interruption Loan Scheme). Moreover, the Group stays on-track to continue to assist the clients and provide long-term sustainable success.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the current market price of GBX 30.62 (as on 8 July 2020, before the market close at 1:07 PM GMT+1), with lower double-digit upside potential based 0.58x Price/NTM Book Value (approx.) on FY20E book value per share (approx.).

Virgin Money UK Plc - Resilient H1 Financial Performance

Virgin Money UK Plc (LON: VMUK), formerly known as CYBG Plc, is a FTSE 250 listed financial services Company, which deals in the business of providing solutions in the space of financial and banking services.

On 28 July 2020, the Company will release the Q3 trading update for FY20.

Recent News
On 22 June 2020, the Company published the Final Terms in relation to the Series 5 €500 million notes (2.875% Fixed Rate Reset Callable Senior Notes due 2025) issued under the £10 billion Global Medium-Term Note Programme of VMUK and Clydesdale Bank PLC.

Financial Highlights (for the six months ended 31 March 2020, as on 6 May 2020)
In the first half of the financial year 2020, the Company stated deposit growth of 1.4% to £64.7 billion and loan growth of 0.3% to £73.2 billion. Business lending growth was of 5.7% in H1 to £8.3 billion, and Personal lending growth was of 6.2% to £5.3 billion. NIM (net interest margin) stood at 1.62% in the H1 period, which remained within the guidance range (Q2: 1.63%).

Led by the expected NIM compression, the pre-provision operating profit was down by 3% to £352 million against the same period last year. On a YoY basis, the underlying profit reduced by 58% to £120 million (H1 2019: £286 million), driven by a COVID-19 impairment charge.

Share Price Performance
 
1-Year Chart as at July-08-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Virgin Money UK Plc’s shares were trading at GBX 91.94 on 8 July 2020 (before the market close at 1:15 PM GMT+1), down by 0.24% against the last day closing price. Stock 52 week High and Low were GBX 222.10 and GBX 46.10, respectively.

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology


Key Risks
The COVID-19 outbreak has changed the operating environment. Hence, it is driving a reduction in the underlying profitability and an increased impairment charge of £232 million against the future loan losses.Market and economic conditions are also challenging.

Conclusion
The Group witnessed growth in loans and deposits, which resulted in optimisation of Balance sheet mix for the period. The Bank is delivering growth in client balances across the personal and business domain. However, the full impact of the COVID-19 outbreak will take time to emerge. The Company delivered good progress on PPI (payment protection insurance) processing. The Group is well-equipped to support changing consumer needs and play a part in the UK’s economic recovery.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the current market price of GBX 91.94 (as on 8 July 2020, before the market close at 1:15 PM GMT+1) with lower double-digit upside potential based 0.35x Price/NTM Book Value (approx.) on FY20E book value per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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