Misses analysts' forecasts

Profits up 24% at Lloyds Bank, unveils higher dividend

Lloyds Banking Group

Lloyds has made a further PPI provision (pic: Terry Murden)

Profits after tax at Lloyds Banking Group rose 24% to £4.4bn in 2018, weaker than analysts’ expectations of £4.6bn, although there was an increase in the dividend.

Statutory profit before tax was up 13% at £5.96bn.

Lloyds Banking Group, which includes Bank Scotland and Scottish Widows, announced a shareholder payout of 3.21p, taking total dividends for investors for the year to around £4bn, and a £1.75bn share buyback.

There’s a £200m provision for Payment Protection Insurance mis-selling in the fourth quarter.

Chief executive António Horta-Osório said “Over 2018 the UK economy has proven itself to be resilient with record employment and continued GDP growth. Although the near term outlook for the UK economy remains uncertain, our strategy continues to deliver for our customers.”

Market reaction

Tom Stevenson, investment director at Fidelity Personal Investing’s share dealing service said: “Lloyds defied the sceptics with a robust result for 2018. After a solid 27% improvement in earnings, the well-covered dividend is 5% higher for the year. That will please shareholders for whom the bank’s 6% yield is one of the main attractions. 

“Lloyds is more dependent on the health of the UK economy than most companies in the FTSE 100. This explains the market’s caution about the shares, which have lost a third of their value over the past four years. Although the immediate outlook is clouded by Brexit uncertainty, Lloyds has a low-risk and simple business model. As long as the UK economy does not fall off a cliff, nor should Lloyds.”

John Moore, senior investment manager at Brewin Dolphin Scotland, said: “It’s a tidy set of results from Lloyds.

“Although progress on net income was modest, this should be seen against a competitive and fairly challenging UK banking environment. The bank is awash with surplus capital and some of that will be returned to shareholders through a more ambitious share buyback scheme of up to £1.75 billion and a 5% hike in its dividend.

“Lloyds’ is in a good position, but the question remains ‘what’s next?’ for the bank. With PPI complaints diminishing and costs coming down ahead of expectations, Lloyds could soon have capital coming out of its ears looking for a useful purpose.”

Russ Mould, investment director at AJ Bell, said: “On most measures 2018 results from Lloyds were slightly short of expectations but like its peer Royal Bank of Scotland the promise of enhanced cash returns to shareholders, including a bumper share buyback, took centre stage.

“Slightly better guidance on cost and impairments means consensus forecasts for 2019 may need to edge up which, in a forward-looking market, makes it easier to dismiss the slight miss in 2018.

“Before the financial crisis intervened Lloyds had a reputation as a solid income stock, and it appears the current management are committed to regaining this mantle. A good job too as capital gains from holding the shares have been thin on the ground.

“And while this is all positive there are clear reasons for not getting carried away. The company’s net interest margin is expected to be flat at best in the year ahead and the company made a further £200m provision for PPI.  Like its peers the company will breathe a big sigh of relief when the claims deadline for PPI comes in August.

“Additionally, Lloyds’ domestic focus leaves it particularly sensitive to the eventual outcome from a Brexit process which is still mired in uncertainty. 

“If a no-deal outcome were to lead to a slump in the economy then this could result in an increase in bad debts with the business arguably even more exposed following its acquisition of credit card business MBNA in 2017.”

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