Lloyds Banking Group Plc – Strong Balance sheet and Well-Positioned to Absorb Coronavirus Impacts

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 29 October 2020, the Group will announce the Q3 interim management statement.

Financial Highlights (for the half-year to 30 June 2020)


(Source: Company Website)

The Company’s net income decreased by 16% to £7.4 billion as compared with the corresponding period of the last year. The net interest margin decreased to 2.59% from 2.90% the year before. At the end of half-yearly, the customer deposits stood at £441 billion, an increase from £412 million at 31 December 2019 and £418 billion the year before. Trading surplus stood at £3.5 billion, a decrease of 26% against the first six months of 2019, providing still substantial capacity to absorb impairment impacts of the COVID-19 crisis. The Group took a £3.8 billion impairment charge in the period, higher than the £579 million a year before. In H1 FY20, the statutory profit after tax was £19 million, and statutory loss before tax stood at £602 million, both impacted by income developments, and the surged impairment charge. Tangible net asset value per share for the first half of 2020 stood at 51.6 pence.  The Company’s loan book was standing at £440 billion, unchanged from the end of 2019 but marginally behind the same point the year before. CET1 ratio increased to 14.6% from 14%.

Share Price Performance


1-Year Chart as on 31 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Lloyds Banking Group Plc’s shares were trading at GBX 25.81 on 31 July 2020 (before the market close at 7:40 AM GMT+1), which was down by 1.52% against the last day closing price. Stock 52 week High and Low were GBX 73.66 and GBX 25.43, respectively.

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.To meet the new regulations, the Group needs to implement new processes, failing to do so would increase the compliance risk.

Valuation Methodology



Conclusion

In the core market, the Group witnessed a recovery sign, mainly in the housing market and consumer spending, but the outlook stays uncertain. Further, the impact of economic fragility and lower rates will continue for at least the rest of the year. In 2020, the net interest margin expected to remain broadly stable, operating costs to be below £7.6 billion, Impairment expected to be in the range of £4.5-£5.5 billion, and the risk-weighted assets expected to be flat. Despite the uncertain environment, the Group’s business model and financial strength will ensure that it can continue to help Britain recover and support the customers. The balance sheet stayed resilient, with a CET1 ratio of 14.6%. The Group has shown impressive growth in the last four years, which indicates the financial resilience and sound business model of the Group.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current market price of GBX 25.81 (as on 31 July 2020, before the market close at 7:40 AM GMT+1) and will recommend fresh buying at the right time.
 
*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.