Lloyds Banking Group plc : LLOY shares are a Buy on a better than expected outcome on loan losses

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Category: Share Price Drivers

Published on Friday, 01 March 2013 09:50

Written by Sam Coventry

Lloyds Banking Group plc (LON:LLOY) shares are being sold-off this morning; LLOY is 3.5 pct in the red at 52.57. Are today's results the catalyst for a change in trend direction?

Reactions to the Lloyds Banking Group results

Liberum Capital analyst Cormac Leech would see today's pullback as an opportunity to Buy into LLOY; the broker has reiterated his Buy rating on the stock in the wake of the results.

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Leech's decision notes the underlying PBT beat which came in at £703m vs. consensus expectations for £524m.

We note that the beat was driven by a better than expected outcome on loan losses:

Revenues £31m light at £4,555m; Costs slightly worse at £2,574m vs. consensus of £2,545m.

"However loan losses substantially better at £1,278m vs. cons £1,517m. Below the line items slightly worse than expected at -£690m despite higher than expected £1.5bn PPI provision," says Leech.

Group net interest margin in line at 1.93% (although 2013e guidance slightly disappointing at 1.98% vs. consensus of 2.00%)

4Q12 Core PBT of £1,452m ahead of LCe by £75m with beat in revenues (OOI) and costs beating by £106m; LLPs slightly worse.

Leech has a target price of 62p set on Lloyds shares.

Markets: Chinese eco data check market gains, UK PMI shocker

The FTSE 100 is in the red come mid-morning in London - the likes of Lloyds  are weighing - however risk sentiment is poor across the board. (UK economic data shocker - Manufacturing PMI plummets).

"After supportive monetary policy comments took the UK index back to the highs of late last week, macro data put gains in check," says Mike van Dulken, Head of Research at Accendo Markets.

China PMI manufacturing missed expectations slightly, falling back toward the key 50 breakeven growth/contraction level, reigniting growth/recovery concerns.

Euro PMI data this morning nothing inspiring but the fact not worse than expected is providing some support to sentiment.

Note bad Italian unemployment though, likely to mean continued rejection of austerity and political deadlock.

US budget sequester today (government spending cuts) not affecting risk appetite much.