Lloyds Banking Group PLC (LSE:LLOY) shares are still good value, according to Shore Capital’s Gary Greenwood, commenting after the bank’s annual results.
Disappointment surrounding guidance given by the lender and the widespread falls in the broader market sent shares 2% lower mid-morning.
Greenwood suggested the market may find the enhanced guidance given by the bank “a little disappointing”.
He noted Lloyds is forecasting a return on total equity of around 13% in 2023, below rival NatWest’s target of 14-16%.
Net interest margin guidance of greater than 3.05% is a little worse than expected (consensus: 3.15%), while impairment ratio guidance of c.30 basis points (bps) is a little better (consensus 35bps).
Costs guidance of £9.1bn is in line with consensus but a little worse than Greenwood’s forecast of £8.9bn. Capital generation of c.175bps should support further significant shareholder distributions, he added.
Greenwood still sees good value in the stock and has a fair value of 60p.
“While the market may be a little disappointed today by the near-term RoTE guidance, the stock still looks good value relative to its target returns,” he added.
He said the results themselves were in line with reported pre-tax profits broadly stable at £6.93bn against the consensus of £6.95bn. Greenwood said the dividend and buyback were as expected.
The banking team at Jefferies thought the £2bn buyback “looks light” as it still leaves £1.3bn of excess capital.
This “will leave investors wondering what management may or not do with the £1.3bn current excess,” they felt.
On guidance they commented: “Guides look typically conservative at this stage of the year - we do not see enough here to make consensus estimates go up materially.”
Jefferies has a 'buy' rating on Lloyds and a 77p price target.
AJ Bell’s Russ Mould agreed that updated medium-term guidance will likely disappoint the market given it falls short of what its closest lookalike, NatWest, is promising in terms of returns.
He suggested the problem facing the bank was “that rates are rising at a time when the economy is slowing, a somewhat unusual situation reflecting the exceptional inflationary pressures facing central banks”.
“This means that while higher rates are boosting profit in the short term, they are creating a situation whereby lots of businesses and consumers are struggling to pay their debts.”