Ownership of The Telegraph may still be stuck in limbo but one party to the saga has emerged as a net benefactor, regardless of what happens: Lloyds Banking Group PLC (LSE:LLOY).
Lloyds took Telegraph Media Group into receivership in June after long-term owners the Barclay brothers failed to honour over £1 billion in debt obligations.
The bank initially wrote the debt down to TMG’s assumed auction value of £500 million, but with backing from Abu Dhabi-back firm RedBird IMI, the Barclays have posted a cheque to Lloyds for the entire £1.2 billion outstanding.
That means Lloyds is getting back every penny owed to it, leaving the Barclays and RedBird IMI to mete out The Telegraph’s fate with UK communications regulators.
In effect, this makes Lloyds £700 million richer than expected, a fact not ignored by London’s equity analysts.
Shore Capital Market said the nine-figure write back, (“provided the story is correct”, which we now know it is) “is not reflected in our current forecasts”, driving a 10% profit-before-tax upgrade and 11% earnings-per-share upgrade for the full year.
“Of course, this would represent a one-off release rather than recurring income. As such, the impact on valuation would be somewhat smaller, with the post-tax benefit of £500 billion equivalent to just under 2% of Lloyds' current market capitalisation of £28.3bn,” said Shore Cap. “In addition, it would bolster capital generation and potentially support a larger-than-expected share buyback.”
Shore Cap currently assumes a £2 billion buyback for 2023, but “this could increase to £2.5 billion if all the net benefit was returned to shareholders”.