Lloyds Banking Group PLC (LON:LLOY) is “more of a Mondeo than a Maserati”, according to an analyst at Hargreaves Lansdown, with the blue chip lender “not going to go anywhere particularly fast, but that does mean there’s less chance of a crash along the way.”
In a note following Lloyds’ third quarter results this morning, Laith Khalaf, senior analyst at Hargreaves Lansdown added: ‘All the dials are pointing in the right direction at Lloyds, but the share price is still being held back by a consensus of angst over Brexit.
“The bank is heavily plugged into the domestic economy, and so could sustain collateral damage if Brexit negotiations prompt a slump in UK growth.”
READ: Lloyds profits jump on absence of fresh PPI provision but shares fall amid Brexit fears
The analyst pointed out that “this risk is affecting sentiment towards many domestic cyclical stocks, and while it is a legitimate concern, there is considerable upside if things turn out for the better. “
He added: “In the meantime there is a 5.8% yield on Lloyds shares, which provides substantial compensation to shareholders for their forbearance.”
Lloyds shares reflected those hopes in late morning trading, rallying modestly from earlier falls, to added 0.6%, or 0.37p at 67.77p.
However, Neil Wilson, senior market analyst at ETX Capital, pointed out that while Lloyds reported a strong rise in third quarter profits, thanks to a fall in one-off costs and misconduct charges in the quarter, trouble may lie ahead.
Credit card exposure eyed
He pointed out that Lloyds’ acquisition of credit cards provider MBNA only served to increase its exposure to unsecured credit in Britain and this is a risk, taking its market share of credit cards to 26%, rivalling Barclaycard.
Wilson said: “The problem is that with inflation rising faster than wages it is hard to see how consumers can significantly pay down debt without producing a serious hit to private consumption and GDP.
“There are also worrying signs that consumers are using debt for essentials. If a hike in interest rates coincides with an economic downturn, lenders like Lloyds could be in trouble.
The analysts concluded: “Just as well Lloyds is generating so much capital – it may need it.”