Lloyds shares up 2.7% despite weakness over Q4

Group’s confidence has risen, with targets expected to be hit early and large share buyback scheme.

Article updated: 21 February 2019 8:00am Author: Graham Spooner

  • Share buyback and improvement in costs overshadow lower than expected profits.
  • Positive CEO outlook forecasting a rise in return on equity and sustainable dividends is likely to reassure investors.
  • We maintain our hold recommendation.

Results this morning from Lloyds were a bit of a mixed bag with profits coming in lower than market expectations; however the market focus is on a larger share buyback and an improvement in costs. The shares are up 2.7% extending this year’s improvement from December lows. The group, like most of its peers, were hit by the market weakness over Q4, but unlike some there was a more confident overall tone.

The group expect to hit cost cutting targets a little earlier than forecast and demonstrated a level of confidence with a £1.75bn share buyback. The net interest margin rose to 2.93% and a final dividend of 2.14 makes a total for the year of 3.21 pence. Private client investors have increasingly focussed on the improving dividend stream.

The important outlook statement like its comment on the past year was fairly upbeat, whilst of course accepting that the UK economy remains unclear. The CEO is forecasting a rise in return on equity to 14 to 15%, progressive and sustainable dividends and for operating costs to be less than £8bn.

We keep our ‘hold’ recommendation and would suggest the shares should be viewed increasingly positively by income seekers.

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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.