Lloyds Banking Group PLC - Actively Supporting Customers, Solid Pre-Provision Profit, Strong Balance Sheet, and Resilient Business Model

Lloyds Banking Group PLC (LON: LLOY) is a FTSE 100 listed United Kingdom-based company engaged in the business of financial and banking services.

On 30^th July 2020, the Company will release its Half-year results for 2020.

Recent News
On 22^nd May 2020, the Group updated the market on its decision in respect of the contractual option to call its EUR 750 million 6.375 per cent AT1 (Additional Tier 1) perpetual bonds.

AGM Statement (as on 21^st May 2020)
The Company’s main purpose is to Help Britain Prosper, and this commitment is currently more important than ever. The Group’s Board, along with its rivals, agreed to cancel the 2019 final dividend in order to provide assurance that the banking industry, through the existing crisis, had the capital it needed to support households and businesses.  Also, the Group committed not to declare share buybacks or ordinary dividends until the end of 2020. LLOY announced the acquisition of Tesco Bank's GBP 3.7 billion prime residential mortgage portfolio and accomplished the integration of MBNA.

Q1 FY20 Update (for the three months ended 31st March 2020)
The Company has shown strong operational performancewith around 90 per cent of branches are open, and ATM’s are running at 95 per cent level. The bank continues to serve its customers in lockdown using digital services. The trading surplus remained strong with GBP 1,988 million and showed an increase of 7 per cent versus Q4 FY2019. The Company has a robust balance sheet with strong capital and liquidity position. LLOY continues to be strongly capitalised with 16.9 per cent Tier 1 ratio and 14.2 per cent CET1 at Q1 2020.

Share Price Performance

1-Year Chart as at May-29-2020, after the market closed (Source: Refinitiv, Thomson Reuters)

On 29th May 2020, Lloyds Banking Group Plc’s shares closed at GBX 29.87 and were down by 4.81 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 73.66/GBX 27.12.

From the technical standpoint, its shares were trading flat as compared to its short-term support level of 20-day simple moving average price. Momentum oscillator RSI 14 days on the chart is reflecting an oversold position for the stock and upside bump can be triggered in the near term.

Valuation Methodology
 

Valuation Metrics

(Source: LSE)

As on 30th April 2020, the Price to Book multiple of the LLOY was 0.5x and the same multiple was lower as compared with the Banks industry. It is reflecting that the Company is trading at a lower multiple as compared to its peers.

Conclusion
The Company and economic outlook remains uncertain, and the final impact of covid-19 will depend on the duration and severity of the shock. Government and Bank of England’s actions will assist to mitigate the impact, with banks assistance an important part of the solution. The impact of lower rates, lower levels of activity, and higher impairment on the Group’s business will continue into the second quarter of 2020. In 2019, the group achieved 20 out of 22 targets, helping to address some of the social, economic and environmental challenges which the UK faces. In 2019, LLOY delivered a solid financial performance with returns and market-leading efficiency. The UK housing market stayed subdued. During 2019, Lloyd’s has lent £13.8 billion to support people to buy their first home. Consumer credit has slowed significant growth, but the Group expects that the slowdown has now run its course. The Group is supporting its customers from retail, commercial and small business through Government-funded schemes like CCFF (Covid Corporate Financing Facility) and CBILS (Coronavirus Business Interruption Loan Scheme). The Group stays on-track to continue to assist its clients, Help Britain Prosper 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 closing price of GBX 29.87 (as on 29^th May 2020), with lower double-digit upside potential based 0.56x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).

Beazley PLC – Operating with Strong Investment Return

Beazley PLC (LON: BEZ) is a FTSE 250 listed specialist insurance company. Its major operations are based in Europe, the United States and the Pacific region.

On 23^rd July 2020, the Company will announce its Interim Results.

Recent News
On 18^th May 2020, Beazley announced its intention to raise gross proceeds of around GBP 247 million by conducting a placing of new ordinary shares and through shares subscription.

On 18^th May 2020, the Company had appointed Teck Siong Ng as an underwriter for the Singapore-based cyber & technology, which focused on risks across the Asia Pacific.

Trading Update (for the three months ended 31st March 2020)
Overall trading update reflected strong growth with gross premiums written for the three months ended 31 March 2020 surged by 13 per cent to USD 840 millionas compared with the corresponding period of the last year. The group witnessed a strong growth of 23 per cent in three of the divisions. On 31st March 2020, the investment and cash surged by 13 per cent to USD 5,774 million.

Share Price Performance
 
1-Year Chart as at May-29-2020, after the market closed (Source: Refinitiv, Thomson Reuters)

On 29th May 2020, Beazley PLC’s shares closed at GBX 384.20 and were down by 2.68 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 634.00/GBX 294.20.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology
 

Conclusion
In the three months ended 31 March 2020, the group has experienced double-digit growth in Gross premiums, investments and cash.BEZ is expecting robust premium growth with rising premium rates in future. Their new and existing insurance lines have been consistently generating profitability. The demand for specialist insurance products is also likely to rise in Canada, Europe and Asia. Over the past two years, renewal business has been growing over 10% and expected to rise in future too. The group expects the total claims on first-party business to be approximately USD 170 million net of reinsurance. Moreover, the company has delivered strong investment returns and premium growth in the financial year.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Buy” recommendation at the closing price of GBX 384.20 (as on 29th May 2020) with lower double-digit upside potential based 1.72x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
* The “Buy” recommendation is valid for the current price as covered in the report as on 1^st June 2020.

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