In considering Lloyds’ annual results released this morning, banks analyst William Howlett explained the company is well placed relative to its peers.
“The outlook for Lloyds is better than consensus,” he said. “Profitability compares favourably to peers reflecting scale and funding advantages. The group’s strong capital generation has allowed the bank to pay conduct charges of £2.1 billion for the year and set aside a buffer to pay for MBNA whilst also paying 3.05p of dividends. We believe Lloyds offers a compelling capital return story reflecting the strength of its balance sheet and underlying capital generation, and as we near the end on PPI charges.”
Lloyds said this morning its pre-tax profits increased by 158% to £4.24bn for the full year. The last time it generated this kind of earnings figure was over ten year ago in 2006, before it was hit by the 2008 financial crisis.
Underlying profits for 2016 fell however to £7.9bn from £8.1bn the previous year, while total income was £17.5bn compared with £17.6bn.
A final ordinary dividend of 1.7p per share was also announced, bringing the total dividend to 2.55p per share, which represents an increase of 13% on 2015.
Shares in the bank responded positively, climbing 3.7% to 69p by mid-morning on Wednesday.
“Today Lloyds reported Q4 profits despite being faced with restructuring costs, beating the consensus of analyst expectations,” said Helal Miah, investment research analyst at The Share Centre. Indeed, investors should appreciate that Britain’s biggest mortgage lender stated that pre-tax profits for the period rose to £973m, which was up from a £507m loss in the same period last year. The profit will undoubtedly be a boost to the British government, given that it hopes to restore Lloyds to full private ownership in the next few months after the bank was bailed out by the tax payer in the 2008 financial crisis.”
“Looking ahead, investors should appreciate that Lloyds expresses confidence in its capabilities and the expectation that the simplification and transformation of its business should see it deliver superior returns for shareholders,” Miah continued. “Nevertheless, whilst our confidence in the group continues to grow, we continue to recommend Lloyds as a ‘hold’ for medium risk investors seeking growth. For those interested in the banking sector, our preference is HSBC as the group is viewed as being more conservatively managed with a superior balance sheet and deposits.”
