Analysts said Lloyds Banking Group PLC’s (LSE:LLOY)‘s first quarter disappointed in some respects but there was plenty to be positive about, as shares in the UK’s largest lender swung from early losses to gains in early-afternoon trades.
In short, profit was 2% below the consensus City forecast, with misses on net interest income (NII) and costs largely offset by lower-than-expected impairment charges.
Full-year guidance was largely unchanged, except for costs, which ticked up slightly to include the addition of the UK bank levy and severance from job cuts.
While the quarter was a bit softer than hoped, UBS said it should result in “the same destination”, with higher costs but a gradual increase in non-banking interest each quarter resulting in a 4% drop in full-year pre-provision profit.
If lower loan losses are continued, “then consensus PBT is broadly unchanged”, said UBS.
Analysts at Jefferies noted that impairment charges of £57 million were an 80% beat to the consensus, with the bank flagging an improvement in new to arrears and flows to default observed across the UK mortgage portfolio.
Jefferies said Lloyds “ticks high-level boxes” in terms of a 13.3% return on tangible equity on a 13.9% CET1 capital ratio and a better quarterly margin performance than expected.
The UK bank levy should be recovered via a corresponding offset in NII over the next quarters.
Seeing a tailwind from the bank’s risk-management hedge worth at least 5% to NII each year, UBS said, “we think LBG – and NatWest and Barclays – are well positioned to perform strongly in 2025 and 2026 given valuations and outlook for Eurozone peers”.
UBS also highlighted Lloyds’ valuation, noting it trades at 6.6 times projected 2025 earnings, which is favourable compared to its European peers.
Shore Capital pointed out that Lloyds’ shares are up 8% so far this year, outperforming the FTSE All-Share index by 5%, albeit lagging NatWest, which is up 30% and does not have exposure to the FCA’s review into discretionary motor finance probe.
Shore Cap’s fair value stands at 61p, Jefferies’ target price is 59p and UBS’s is 58p.
