Lloyds Banking Group’s quarter damned with faint praise … here’s what the market said
Lloyds Banking Group (LSE:LLOY) on Thursday saw a dim dip in price after releasing second-quarter results that underwhelmed, without offending.
“Pretty much in line with expectations”, was how one market reporter put it.
Whilst the bank has shown resilience in some areas, including lower-than-expected impairment charges for the motor finance kerfuffle and stable profit margins, the market's reaction has been less positive.
At 59.42p, the share price was down 0.4% for the day, which nonetheless leaves the British bank share some 23.5% higher for 2024 to date.
But what was the market saying? … here, we take a curated look at some of the commentary from the City of London’s talking heads.
"Guidance Unchanged, Short-term Weakness Expected"
Peel Hunt analysts observed that while Lloyds' adjusted profit before tax (PBT) was 7% ahead of consensus due to lower impairment charges, revenues fell short of expectations. They highlighted the unchanged guidance, which might lead to slight short-term weakness in the stock price.
"We see nothing to push the share price on further and would expect slight weakness in the shorter term, although the medium-term outlook remains positive." – Robert Sage and Stuart Duncan, analysts at Peel Hunt.
"Market Disappointed by Lack of NIM Upgrade"
Shore Capital noted that despite a 7% beat on PBT and upgraded impairment guidance, the market might be disappointed by the absence of a net interest margin (NIM) upgrade. He pointed out that the shares are trading close to fair value, with limited upside potential.
"Consensus earnings may nudge up a touch, but the market may be disappointed that there isn’t a bigger upgrade given the recent strong run in the shares." – Gary Greenwood, Shore Capital analyst.
"Resiliency Amid Macroeconomic Headwinds"
Edison emphasised Lloyds' resilience amidst macroeconomic challenges, noting solid returns on tangible equity and strong franchise growth. The research house highlighted strategic adjustments in the automotive finance sector as a significant positive.
"Overall, Lloyds Banking Group's half-year results exhibit solid financial health and strategic alignment, standing to the test of confidence as global interest in the UK economy continues to grow." – Fraser Thorne, Edison chief executive.
"Improved Economic Outlook Drives Profit"
Hargreaves Lansdown suggested investors look beyond the year-on-year numbers, which reflect expected performance declines from record 2023 levels. He pointed out the positive impact of an improved economic outlook on profit performance and resilience in borrower behavior.
"Underneath the accountants' mojo, borrowers continue to show resilience in the face of higher interest rates. Lloyds grew the loan book over the period, with a slight uptick in new mortgages." – Matt Britzman, Hargreaves Lansdown senior equity analyst.
"Resilient Performance with Promising Signs"
Interactive Investor highlighted Lloyds' resilient performance amid higher interest rates and promising growth signs. He mentioned the potential for further income from the structural hedge and a steady customer base.
"Lloyds has provided a timely reminder as to why it is often seen as a barometer for the wider UK economy." – Richard Hunter, Interactive Investor head of markets.
"In Line with Expectations"
Stockbroker RBC Brewin Dolphin commented that Lloyds' results were broadly in line with expectations, despite the pressures on the net interest margin from peaking interest rates and competition. She noted that the bank is on track to meet its annual and longer-term strategic goals.
"All things being equal, the bank is on track to deliver its guidance for the year and longer-term strategic aims." – Zoe Gillespie, RBC Brewin Dolphin senior investment manager.
"Positive Loan Losses and Growth Prospects"
Morninstar praised Lloyds' positive loan loss figures and highlighted growth prospects, especially in the mortgage sector. He noted the bank's focus on cost management and the importance of maintaining guidance to avoid negative sentiment.
"Less severe economic scenarios and improving default rates in mortgages are a positive sign for not just Lloyds, but the UK economy as a whole." – Niklas Kammer, Morningstar equity analyst.
"Lloyds Fails to Impress After Strong Run"
AJ Bell highlighted several concerns regarding Lloyds' recent performance.
"The company may have just about squeaked ahead of forecasts with its latest results but a lack of upgrades following a strong run for the share price has put Lloyds on the back foot,” said AJ Bell investment analyst Dan Coatsworth.
"Given rates have stayed higher for longer, there may have been some expectation that Lloyds would have done rather better on net interest margins."
"In Line with Expectations"
Charles Stanley observed that Lloyds' results were generally in line with expectations, with the windfall from higher UK interest rates starting to wane. He pointed out the slight decline in NIM but noted the bank's ongoing expectation for a robust average NIM for the year.
"The results were generally in line with expectations." – Garry White, Charles Stanley’s chief investment commentator.
In short, cautious optimism is the theme
Overall, the market's reaction to Lloyds Banking Group's quarterly results reflected a cautious optimism.
Whilst acknowledging the bank's resilience, financial pundits also can’t ignore the headwinds.
Nevertheless, as the short-term outlook may see some weakness, the medium- to long-term prospects are still being viewed as positive.
Steady but far from spectacular may perhaps be as bullish a view as can presently be taken, not just for Lloyds, but likely also for the broader sector as well.
