Lloyds Banking Group PLC (LSE:LLOY) is misunderstood and mispriced, that’s the view of stockbroker Shore Capital, which has repeated a ‘buy’ recommendation following this morning’s second quarter results.
Analyst Gary Greenwood, in a note, highlighted that Lloyds beat market expectations in the quarter and its guidance has been upgraded.
Nevertheless, he meanwhile points out that prior to today’s results Lloyds shares – up 3.8% in this morning’s early deals, at 45.15p – were some 20% beneath their 12-month high and were down around 9% for the year-to-date.
The share price has fallen as investors have become increasingly concerned about the weakening UK economic outlook and mortgage margin compression, Greenwood says, with the fear being that a recession could outweigh the benefits to income from rising interest rates.
But, according to the analyst, Lloyds is in more resolute shape nowadays.
“We believe the market is misunderstanding and so mispricing the significant improvement in bank balance sheets since the Global Financial Crisis and that they will prove much more resilient than in previous cycles,” he said.
In this morning’s results, Lloyds reported half year net income of £8.45bn for the six months to June 30th, up 12%, though earnings per share slipped to 3.7p from 5.1p.
The banking group said given the strong financial performance in the first half of 2022 and based on current macroeconomic assumptions it was raising 2022 guidance.
Banking net interest margin is now expected to be greater than 280 basis points and the return on tangible equity is now expected to be around 13%. Capital generation, meanwhile, is now expected to be greater than 200 basis points.
Lloyds told investors that asset quality has remained strong with no current deterioration seen across its portfolio.