Lloyds Banking Group PLC

United Kingdom-based, Lloyds Banking Group Plc (Identifier: LLOY) is 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.

Recent News
On 31^st October 2019, the company announced that Juan Colombás, as a Chief Operating Officer (COO), intends to retire from the group in July 2020.

Financial Highlights (for the nine months ended 30 September 2019)
On 31^st October 2019, the company released a statement on the third-quarter performance of the fiscal year 2019. The company’s net income was down by 6 per cent to £4,187 million in Q3 FY19as against £4,452 million in Q3 FY18. The company’s underlying profit was down by 12 per cent to £1,822 million in Q3 FY19as 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.

For the nine months of 2019, the company’s net income decreased by 3 per cent to £13,009 millionas 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.

The banking company’s net interest margin dipped by 4 basis points to 2.89 per cent in nine months of 2019 as compared to the nine months of 2018.  The cost to income ratio of the company dipped by 1 percentage points to 46.5% in the nine months of 2019. The return on tangible equity stood at 6.8 per cent in 9M FY2019. In the first nine months of the year, the CET1 capital ratio decreased to 14.4 per cent pre dividend accrual.

Share Price Performance

Daily Chart as at October-31-19, before the market closed (Source: Thomson Reuters)

On 31st October 2019, Lloyds Banking Group plc shares were trading at GBX 56.91 at the time of writing before the market close (at 1:15 PM GMT), down by 1.198% against the previous day closing price. Stock's 52 weeks High and Low are GBX 67.90/GBX 48.16. The company's stock beta was 0.73, reflecting the lower volatility as compared to the benchmark index.

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 have made robust strategic growth and provided strong financial performancein 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, but the company stays well placed to support the clients and to continue to Help Britain Prosper.

Based on the above rationale, we have given a "Hold" recommendation at the current price of GBX 56.91 (as on 30^th October 2019, before the market close).
 

International Consolidated Airlines Group SA

International Consolidated Airlines Group SA (IAG) is among the world’s largest airline group headquartered in London, United Kingdom. The group has 573 aircraft carrying around 113 million passengers to 268 destinations each year. IAG is a market leader in three European countries, i.e. Ireland, UK and Spain which enables them to gain the majority of share in the aviation market.

Financial Highlights (for the nine months to September 30, 2019, €million)

(Source: Company Filings, LSE)

In the nine months of the financial year 2019, the company reported total statutory revenue of €19,399 millionagainst €18,346 million for the same period of the last year. There was an increase of 5.7 per cent in revenue, due to the steady growth of both passenger revenue and other revenue. The company’s statutory operating profit (before exceptional items) declined by 9 per cent in comparison with the last year data mainly due to an increase in the operating and administrative expenses for the period. Statutory Operating profit (after exceptional items) declined from €3,159 million in 9M FY2018 to €2,520 million in 9M FY2019. Adjusted earnings per share declined by 1.4 per cent to €88.7 cents in 9M FY19as compared with the corresponding period of the last year. On 30 September 2019, the cash was €7,838 million and net debt to EBITDA stood at 1.2 times and it was in line with 2018. The net debt reduced by 3.9 per cent to €6,179 million in 9M FY2019against the same period in 2018. Interim dividend per share stood at 14.5 cents.

Share Price Performance

Daily Chart as at October-31-19, before the market closed (Source: Thomson Reuters)

On 31st October 2019, International Consolidated Airlines Group SA shares were trading at GBX 521.60 at the time of writing before the market close (at 12:15 PM GMT), up by 0.35% against the previous day closing price. Stock's 52 weeks High and Low are GBX 668.98/GBX 411.50. The company's stock beta was 0.73, reflecting the lower volatility as compared to the benchmark index.

Conclusion
In the third quarter of 2019, the company reported an operating profit (before exceptional items) of €1,425 million, a decrease from €1,530 million last year. As the company said earlier in September 2019, the performance had been affected by industrial action by pilots' union BALPA (British Airline Pilots’ Association) and other disruption containing threatened strikes by Heathrow airport employees. Further, the fuel bill surged by €136 million in the current period with fuel unit costs increased by 4.2 per cent at constant currency. At constant currency, passenger unit revenue declined by 1.1 per cent while non-fuel unit costs surged by 1.1 per cent. At current fuel prices and exchange rates, the company anticipates its 2019 operating profit before exceptional items to be €215 million, a decrease from the 2018 pro forma (€3,485 million). Passenger unit revenue is anticipated to decrease at constant currency marginally, and non-fuel unit costs are anticipated to enhance at constant currency.

Political uncertainty, fuel price volatilityare the major risks that can impact the performance of the business group. The company’s operations will be impacted by the uncertainty created over Brexit. The company operations are greatly impacted by industrial action in the financial year 2019.

Based on the above rationale, we have given a "Hold" recommendation at the closing price of GBX 519.80 (as on 30^th October 2019).

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