Lloyds Bank report a stronger performance despite slide in profit

Analysts’ forecasts have been beaten with rise in income and a stable net interest margin.

Article updated: 25 October 2018 10:00am Author: Graham Spooner

  • Shares are up 1% this morning as results came in ahead of expectations.
  • The group reported an increase in revenue and profits in the first nine months.
  • We continue to see the shares as no better than a ‘hold’ for medium risk investors.

On a weak morning for the market Lloyds is an early bright spot, with the shares up 1%, as results came in ahead of analyst expectations. Long-suffering investors who have seen the shares fall this year close to a two-year low will be hoping that these numbers show a possible light at the end of the tunnel, despite Brexit looming large for this UK-focussed bank.

Income over the quarter was up 1% to $4.7bn, while profit declined by 7% to £1.8bn as a result of restructuring costs. Meanwhile, profits rose 10% in the first nine months of the year to £4.9bn, beating analysts’ forecasts. The net interest margin (the difference between the rate they borrow and lend) was stable at 2.93% as loans and advances were up £2.3bn in the quarter.

The group reaffirmed its targets for the year and for the longer term, which will reassure investors further. Furthermore, management stated that it has made a strong start to its 2018 to 2020 strategic plan as it has implemented initiatives to transform the group for success in a digital world. So far it has made significant investment into robotics to digitise the group and enhance productivity.

The CEO stated that the numbers “demonstrate the strength of our business model” and its recent announcement of a wealth management joint venture initiative with Schroders further demonstrates Lloyd’s focus to enhance its customer proposition and grow its financial planning businesses.

Meanwhile, the bank’s chief financial officer George Culmer announced his plan to retire next year having been a crucial member to the management team, particularly in its turnaround programme.

Overall, investors should remain optimistic on Lloyds’ improving financial performance especially following the completion of its £1bn share buyback, with more than £3.2bn returned to shareholders during 2018. The outlook for the group is hopeful but Brexit concerns appear to be holding the shares in check. We therefore keep our ‘hold’ recommendation but would suggest that the shares be viewed increasingly positively by income seekers.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Graham Spooner portrait photo
Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FCA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.