- Fourth-quarter profit tops estimates
- Medium-term outlook reassures
- Share buyback short of expectations
Investors in Lloyds Banking (LLOY), the last of the high-street lenders to report its 2022 earnings, gave the results and the outlook a cautious welcome but appeared unimpressed by the company’s plan to return capital.
The shares dipped 2% to 49.8p, sending them close to the bottom of the FTSE 100 performance table.
EARNINGS AND OUTLOOK PLEASE
For the full year, net profit attributable to shareholders was £5.55 billion against £5.88 billion the previous year meaning earnings per share were down slightly at 5.3p compared with 7.5p and a forecast of 8p per share.
In the fourth quarter alone, though, net profit was £1.52 billion against £420 million, ahead of analysts’ forecasts, as the bank cashed in on rising rates and raised its net interest margin by more than the market expected.
Like its rivals, the bank put up its provisions for estimated credit losses, reversing the previous year’s write-back, after revising down its outlook for the UK economy.
However, despite the less favourable economic outlook, the bank’s guidance for its own performance this year and next year, in particular the net interest margin, was well received by investors and analysts.
Joseph Dickerson of Jefferies described the bank’s results and guidance as ‘ticking the right boxes’, and while he doesn’t see consensus estimates rising, current forecasts are ‘very much the floor’.
CAPITAL RETURN RAISES QUESTIONS
As anticipated, the bank announced a sizeable return of capital, setting aside £2 billion to buy back shares (the equivalent of around 6% of its market cap).
Given its pro forma CET1 (core equity tier one) capital ratio of 14.1%, which is well above the bank’s internal target of 12.5%, that leaves somewhere in the region of £1.3 billion of surplus capital.
As Jefferies’ Dickerson points out, given Lloyds’ cash pile is likely to build further this year, investors will be wondering what management intend to do with the surplus.
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