Lloyds Banking Group Plc

Lloyds Banking Group Plc (LLOY) is a United Kingdom-based company engaged in the business of providing financial and banking services with an array of specialised services such as Investment Banking, Merchant Banking and Personal Banking. The company has segregated operations in the Retail segment, Commercial Banking segment, Consumer Finance segment, as well as Insurance and Other business segments.

Financial Highlights – 9M Financial Year 2019 (30th September 2019, GBP, million)

(Source: Quarterly Report, Company Website)

In the nine months of the financial year 2019, the company’s net income decreased by 3 per cent to £13,009 million as compared with the corresponding period of the last year, reflecting lower net interest income and other income, while operating lease depreciation was stable. In 9M FY2019, the underlying profit stood at £6,016 million, a decrease of 5 per cent from the same period in 2018. Earnings per share declined by 53 per cent to 2.2 pence in 9M FY19 against the 4.7 pence in 9M FY18.

For the third quarter of FY2019, the company’s net income was down by 6 per cent to £4,187 million in Q3 FY19 as against £4,452 million in Q3 FY18. The company’s underlying profit was down by 12 per cent to £1,822 million in Q3 FY19 as against £2,069 million in Q3 FY18. A £1.8 billion PPI (payment protection insurance premium) charge was the main driver of a 97% drop in the pre-tax profits to £50 million in Q3 FY19.

Share Price Performance

Daily Chart as at 25th November 2019, before the market closed (Source: Thomson Reuters)

On November 25, 2019, Lloyds Banking Group Plc shares were trading at GBX 60.71 at the time of writing before the market close (at 11:35 AM GMT), up by 1.54 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 67.90/GBX 48.16.

Conclusion
In 2019 guidance, the net interest margin of 2.88% stood in line with prior guidance; operating costs now anticipated to be less than £7.9 bn ahead of prior guidance, and cost: income ratio to be lower than in 2018; net asset quality ratio of less than 30bps; and free capital build of 75bps post the PPI charge of 121bps.

In 9M FY2019, the company has made robust strategic growth and provided strong financial performance in a very challenging external environment. The statutory result was substantially affected by the additional PPI charge in Q3 FY19. However, the company’s performance persists in showing the resilience of the client franchise and business model with a robust balance sheet. Although economic uncertainty may impact the industry in which the company operates, but it stays well-positioned to support its clients.

Based on the above rationale, we have given a "Hold" recommendation at the closing price of GBX 59.79 (as on 22nd November 2019).

Standard Chartered Plc

Standard Chartered Plc (STAN) is a British multinational banking company, with headquarters in London, the United Kingdom. In the year 1969, through the merger of two separate banks-the Standard Bank and the Chartered Bank, Standard Chartered Bank was formed, with the aim of capturing the efficiencies of regional diversity.

Financial Highlights – Nine Months of Financial Year 2019 (30th September 2019, $, million)

(Source: Quarterly Report, Company Website)
 
For 9M FY 2019 period, the net interest income surged by 7 per cent to USD 7,028 million, due to an increased contribution from trading book assets in Financial Markets and volume growth. The company’s operating income increased by 3 per cent to $11,674 million for 9M FY2019 against the $11,373 million for 9M FY18, while on a constant currency basis, the operating income increased by 5 per cent for the period. Underlying profit before tax surged by 12 per cent to $3,847 million for 9M FY2019 as compared with the corresponding period of the last year. Statutory profit before tax climbed by 3 per cent to $3,519 million from $3,408 million for 9M FY2018. Profit for the period declined by 3 per cent to $2,268 million for 9M FY2019 against the same period in 2018. Underlying basic earnings per share surged to 75.7 cents for 9M FY2019 versus 67.1 cents for 9M FY2018. Statutory basic EPS reduced to 60.5 cents as compared with the corresponding period of the last year.

Share Price Performance 

Daily Chart as at 25th November 2019, before the market closed (Source: Thomson Reuters)

On November 25, 2019, Standard Chartered Plc shares were trading at GBX 697.80 at the time of writing before the market close (at 11:41 AM GMT), up by 1.10 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 742.60/GBX 573.80.

Valuation Methodology
 

*Peers: Metro Bank PLC, HSBC Holdings PLC, AIB Group plc, Paragon Banking Group PLC and Royal Bank of Scotland Group PLC.

 
Conclusion

Standard Chartered PLC had shown decent financial performance. There was an increase in the profitability of the company, but the bottom-line performance had slightly declined for the period. However, the company’s operating income declined from multiple geographic locations such as Africa & Middle East and ASEAN & South Asia for the current period. The company expect costs in the second half to be slightly higher, while full-year costs could grow below the rate of inflation.

The company said that it was well prepared for Brexit, with its German business now operational and providing a strong base to grow the continental Europe franchise.
 
On the basis of risks as aligned with the business operations, and the valuation done as shown in the above table, we recommend investors to keep a “Watch” on the stock at the current price of GBX 699.80 (as on 25^th November 2019, before the market close at 8:35 AM GMT), while any correction with support from few catalysts needs to be evaluated at a later stage.
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.Currency exchange rate taken for 1 USD = 0.77636 GBP.

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