Lloyds Banking on Wednesday raised its annual guidance against a beneficial backdrop of rising UK interest rates.
For the six months to June 30, net income was £8.45 billion, up sharply from £7.56 last year, but pretax profit was £3.66 billion, down from £3.91 billion.
Lloyds said it set aside £377 million to cover a possible increase in loan defaults as UK interest rates rise to combat rampant inflation.
Underlying profit before the impairment was up 34% to £4.1 billion in the first half, driven by strong net income growth.
Lloyds’s CET1 ratio - a key measure of a bank’s financial strength - stood at 14.7% on June 30, down from 16.7% at the same time last year.
Turning to returns, Lloyds declared a 0.80p interim dividend, up 20% from last year and worth £550 million in total.
Looking ahead to 2022, Lloyds said its banking net interest margin is now expected to be greater than 280 basis points. It was 2.77% in the first half, up from 2.50% a year before.
Lloyds said its return on tangible equity is now seen at 13% in 2022. It was 13.2% in the first half, down from 19.2% a year ago.
The bank’s six-month results were ahead of expectations, commented John Moore at wealth manager Brewin Dolphin, with rising interest rates boosting net interest margin and little sign of deterioration in credit quality.
‘Lloyds is in reasonable shape to weather a tougher macro-economic environment, with its restructuring programme keeping costs in check and new services in the offing,’ Moor said. ‘But, there are still loose ends to tie up – for instance, its ownership of Scottish Widows – and investors will be looking for updates on these fronts in the next set of statements.’
Lloyds shares were up 3.9% early Wednesday.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.5% at 7,339.06
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Hang Seng: down 1.4% at 20,617.88
Nikkei 225: closed up 0.2% at 27,715.75
S&P/ASX 200: closed up 0.2% at 6,823.20
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DJIA: closed down 228.50 points, or 0.7%, at 31,761.54
S&P 500: closed down 1.2% at 3,921.05
Nasdaq Composite: closed down 1.9% at 11,562.57
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EUR: up at $1.0133 ($1.0120)
GBP: up at $1.2048 ($1.2021)
USD: up at JP¥136.97 (JP¥136.63)
Gold: up at $1,718.76 per ounce ($1,717.77)
Oil (Brent): down at $104.57 a barrel ($105.24)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Wednesday’s key economic events still to come
0700 EDT US MBA weekly mortgage applications survey
0830 EDT US durable goods orders
0830 EDT US trade balance
1000 EDT US pending home sales index
1030 EDT US EIA weekly petroleum status report
1400 EDT US interest rate decision
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Rail passengers in the UK were suffering fresh travel chaos on Wednesday when thousands of workers walked out on strike, crippling services across the country. Disputes in the bitter row over jobs, pay, pensions and conditions are worsening, with more strikes in the coming days, and a wave of industrial action planned next month on the railways and London Underground. Only around one in five trains will run on Wednesday, on around half the network, with some areas having no trains all day. Picket lines were being mounted outside train stations as members of the Rail, Maritime & Transport union at Network Rail and 14 train operators went on strike.
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UK financial services firms will have a new duty to put their customers’ needs at the heart of what they do, under plans being set out by the City regulator, PA reports. The Financial Conduct Authority said the new consumer duty will lead to a major shift in financial services, fundamentally improving how firms serve customers. The duty includes a consumer principle that ‘a firm must act to deliver good outcomes for retail customers’. Firms are being given 12 months to implement the rules for new and existing products and services that are currently on sale. The rules will be extended to ‘closed book’ products 12 months later to give firms more time to bring older products, no longer on sale, up to the new standards. The duty will include requirements for firms to make it as easy to switch or cancel products as it was to take them out in the first place, with an end to ‘rip-off’ charges and fees.
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BROKER RATING CHANGES
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Citigroup raises Admiral to ’buy’ (neutral) - price target 2,026 (2,366) pence
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Berenberg raises Legal & General to ’buy’ (hold) - price target 345 (343) pence
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Deutsche Bank raises Unilever to ’buy’ (hold) - price target 4,600 pence
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DZ Bank cuts Unilever to ’hold’ (buy) - price target 4,350 (4,250) pence
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COMPANIES - FTSE 100
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Pharmaceutical firm GSK, in its first earnings report since the spin-off of consumer business Haleon, said pretax profit fell to £896 million in the second quarter from £1.07 billion a year before, as revenue dropped to £6.93 billion from £8.09 billion. GSK declared a 16.25 pence dividend for the quarter, down from 19p a year ago. It said it expects sales to rise by 6% to 8% in 2022.
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Meanwhile, Haleon reported £5.19 billion in revenue in the first half of 2022, up from £4.58 billion a year before. It expects 6% to 8% organic growth in 2022, saying price increases will offset cost inflation.
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British American Tobacco reported a strong first half operational performance and said it is transforming the business. For the six months to June 30, revenue was £12.87 billion, up from £12.18 billion last year, but pretax profit was £3.06 billion, down from £4.38 billion. The Dunhill and Lucky Strike cigarette maker said it has taken a £957 million impairment charge related to the transfer of its Russian business following Moscow’s invasion of Ukraine. During the period, BAT said it continued to invest in transformation, with over £1 billion invested in New Categories in the first half. In addition, it said it improved the contribution from New Categories, with losses down for the second consecutive period, reducing by a further £281 million, at constant rates. ‘In summary, our robust first half results give us confidence in our full year guidance. We are making strong progress towards our ’faster transformation’ and building a sustainable ’enterprise of the future’,’ said Chief Executive Officer Jack Bowles.
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Miner Rio Tinto cut its interim dividend following a fall in first-half profit, hurt by weaker iron ore prices. For the six months to June 30, revenue fell to $29.78 billion from $33.08 billion last year, and pretax profit slumped to $12.32 billion from $18.05 billion. Rio Tinto declared an interim dividend of 267.0 US cents, down from 376.0 cents last year. The miner said operations and growth projects continue to be hurt by the ‘high unplanned absences’, tight labour markets, rising input costs and supply chain disruptions. ‘We continue to monitor areas of uncertainty in the short to medium term, namely the evolving situation with the war in Ukraine and potential further Russian sanctions, rising inflation and COVID-19 related disruptions,’ Rio said.
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Anglo American said rough diamond sales remained robust on an annual basis in the most recent cycle, but suffered a slight decline compared to the previous sales cycle. Rough diamond sales value for the sixth sales cycle was 23% higher at $630 million from $514 million million in the same cycle last year. But sales in the six cycle fell by 4.1% from $657 million in the fifth cycle. The latest provisional figures represents sales between July 11 and 26.
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COMPANIES - GLOBAL
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Deutsche Bank managed to post a profit of more than €1 billion in the second quarter. Profits attributable to shareholders climbed to €1.05 billion - some 1.5 times as much as the previous year, the lender said. The news beat analysts expectations overall. In the first half of the year, the bank said it marked its highest after-tax profit since 2011. ‘With the best half-year profits since 2011, we have proven - once again - that we can deliver growth and rising profits in a challenging environment,’ said Chief Executive Christian Sewing. However, in view of climbing inflation and other potential challenges, Sewing is being more cautious about the year as a whole.
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BASF reported a rise in interim earnings and sales, leading the German chemical producer to upgrade its full-year sales guidance despite cautioning on higher raw material and energy prices. In the second quarter of 2022, BASF posted sales of €22.97 billion, up 16% from €19.75 billion the previous year. The firm said this was primarily due to significant price increases in almost all its segments. Net income in the quarter stood at €2.09 billion. This represented a 26% increase against the previous year’s figure of €1.65 billion. ‘Despite the continued high raw materials and energy prices, we again achieved strong earnings in the second quarter,’ said Chair Martin Brudermuller. As a result, the firm raised its full-year sales outlook to between €86 billion to €89 billion, up from between €74 billion to €77 billion.
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Miners in Angola have unearthed a rare pure pink diamond that is believed to be the largest found in 300 years, the Australian site operator announced. A 170 carat pink diamond – dubbed The Lulo Rose – was discovered at Lulo mine in the country’s diamond-rich northeast and is among the largest pink diamonds ever found, the Lucapa Diamond Company said in a statement to investors. The ‘historic’ find of the Type IIa diamond, one of the rarest and purest forms of natural stones, was welcomed by the Angolan government, which is also a partner in the mine. ‘This record and spectacular pink diamond recovered from Lulo continues to showcase Angola as an important player on the world stage,’ Angola Mineral Resources Minister Diamantino Azevedo said.
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Wednesday’s shareholder meetings
Allied Minds PLC - AGM
Caledonia Investments PLC - AGM
De La Rue PLC - AGM
FirstGroup PLC - AGM
James Cropper PLC - AGM
JPMorgan Japan Small Cap Growth & Income PLC - AGM
Mode Global Holdings PLC - AGM
Montanaro UK Smaller Cos Investment Trust PLC - AGM
Motorpoint Group PLC - AGM
Shield Therapeutics PLC - AGM
Tatton Asset Management PLC - AGM
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