Half-year results from Lloyds Banking Group PLC (LSE:LLOY) were pretty much in line with expectations, but analysts felt the market was likely to be disappointed that margin guidance was not raised.
The results included a second-quarter underlying pre-tax profit of £1.74 billion, which was 6% ahead of consensus forecasts.
UBS analyst Jason Napier said that this was driven by 86% lower impairments, more than offsetting an 8% pre-provision profit miss.
Net interest income was 1% below expectations and other income 1% was higher, while operating lease depreciation (OLD) was 40% higher for a 3% miss on net income on a £100 million provision for lower electric vehicle recovery values, "as we expected".
The dividend was "broadly in line" with consensus and full-year guidance was largely retained, except for lower impairments.
Net interest margin (NIM) of at least 290bps was guided for the full year, whereas consensus is predicting 295bps.
At Peel Hunt, analyst Robert Sage said costs were slightly better than expected, and the impairment charge of £44m was significantly below consensus, flattered by provision releases as the economic outlook improved.
On the guidance, they said the main tweaks were that an increase in the structural hedge contribution is now guided to be at least £0.7 billion above 2023, marginally better than previously indicated, while the cost of risk is now guided to be below 20bps, down from below 30bps.
"The share price has been strong so far in 2024, and there could be modest disappointment that guidance has not been raised," they said, especially for net interest margin despite interest rates being higher for longer.
"We see nothing to push the share price on further and would expect slight weakness in the shorter term, although the medium-term outlook remains positive," they added, noting that the shares are trading towards the top end of the sector at circa 1.2 times tangible net asset value.
At Shore Capital, analyst Gary Greenwood was of a similar mind, saying, "We think the market may be disappointed by the lack of a NIM beat and upgrade given higher for longer interest rates while noting that TNAV per share disappointed due to an upward shift in long-term interest rates impacting negatively on the cash flow hedge reserve."
Following a strong run, Lloyds shares were now trading close to what Greenwood said was "fair value".
On the back of these results, he felt consensus earnings may nudge up a touch, "but the market may be disappointed that there isn’t a bigger upgrade given the recent strong run in the shares."