Stock of the Week: Lloyds Banking Group

VIDEO: Bank has just put out half year results, and the shares rose nearly 5% after the news

James Gard 29 July, 2022 | 10:02AM
Facebook Twitter LinkedIn

 

 

James Gard: Welcome to Morningstar. So, bank earnings season is in full swing. So, our latest stock of the week is Lloyds. The bank has just put out half year results, and the shares rose nearly 5% after the news. In simple terms, rising interest rates are good for banks because they get paid more for lending money. But bank results themselves are often confusing with talk of impairment charges, net interest income and return on tangible equity.

So, let's stick to the basics. Half year profits were down on 2021 levels because of losses set aside for loan defaults. But the dividend is up 20% on last year and the shares yield nearly 5%. Full year profits are expected to be around £6.6 billion but could be revised higher. Lloyds is also one of the cheapest of the big four banks with the price to earnings ratio of around 7.5.

Lloyds is seen as a bellwether for the U.K. economy. So, are there any signs of the gathering storm that experts are predicting? Well, loans to customers including mortgages, credit cards, overdrafts, and car loans are only 1% higher than this time last year, and this suggests that borrowers are not exactly piling up on debt during the cost-of-living crisis. In fact, Lloyds notes that customers are actually increasing their savings rates and there is talk of resilience.

There is a sense though that banks are in a sweet spot before things take a turn for the worst economically. According to Morningstar analysts Lloyds has a fair value of around 68 pence per share but are currently trading around 45 pence per share after a share price fall of around 10% this year.

For Morningstar, I've been James Gard.

Sign Up for Morningstar UK Newsletters

Subscribe Here

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

James Gard

James Gard  is senior editor for Morningstar.co.uk

 

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures