Lloyds Banking third quarter results beat forecasts

25th Oct 2018 07:17

(Sharecast News) - Lloyds Banking Group reported flat underlying profits for the third quarter and revealed that chief financial officer George Culmer will retire next year.Underlying profit of £2.07bn in the three months to 30 September beat the average analysts forecast of £1.98bn, as total income increased 1% to £4.69bn, slightly ahead of City analyst expectations. Net interest margin remained stable at 2.93% as it was at the half-year stage.Statutory profits before tax were down 7% to £1.82bn as restructuring costs were greater during the quarter, though there were no new provisions for PPI mis-selling. For the first nine months of the year PBT has risen 10% to £4.93bn and earnings per share by 21% to 4.7p.Loans and advances to customers rose £2.3bn in the quarter to £445bn, though little changed from where the bank was at the start of the year. Management highlighted "prudent lending growth" being made in "targeted segments".Lloyds said increased efficiency from digitalisation and improved processes was behind a 1% improvement in operating costs for the quarter, while costs in the first nine months of the year are essentially flat on last year as increased investment in the business has offset a 4% fall in underlying costs.The balance sheet remained strong, with common equity tier-1 capital build of 41 basis points in the quarter and 162 basis points year to date. The CET1 ratio increased to 15.5% or 14.6% if excluding the dividend accrual.After buying back £1bn of shares this year, there has been recent press speculation suggesting that the group is planning a £2bn share buy back in 2019, though there was no comment from management.So far 2018 has seen a "strong and sustainable" performance, said chief executive António Horta-Osório, with increased returns and continued strong capital build as part of his low risk approach.The Spaniard said a "strong start" has been made to his new strategic plan, to "transform the group for success in a digital world", with strategic investment accelerating and "already delivering real benefits to customers whilst operating costs continue to reduce".He said Lloyds remained on track to deliver the improved financial targets for the full year and longer term guidance.CFO Culmer plans to retire from the group after next year's half-year results, around seven years after he joined. The search for a suitable successor has already begun.MARKET REACTION & ANALYSISLloyds shares, which earlier this week had fallen almost 17% since the start of the year to a two-year low, were little moved in early trading on Thursday at 56.83p.Broker Shore Capital said it looked a "solid set" of results and putting the group firmly on track to achieve its full year targets.With the capital position remaining strong and speculation of a £2bn share buy back in 2019, ShoreCap's analysts said: "We think this would be a very sensible use of capital at the current share price."UBS was impressed that Lloyds "continues to maintain margins despite competitive mortgage market conditions by shifting mix in both loans and deposits", with cost management also ahead of forecasts, loan losses modest and the bank "should - ex UK bank levy - be able to continue to deliver strong profitability we think".Although UBS analysts expect the UK stress test result on 5 December to show a "significant capital drawdown" for all players, and think "the sustainability of dividends and buybacks are under-estimated and undervalued, likely driven significantly by Brexit uncertainty".On a valuation of 7.1 times full year 2019 EPS, a 5% yield, with a 5% buyback, a 20% discount to the European average, with management's 170-200bps per annum capital generation target amounting to a free cashflow yield of around 10%, UBS think the stock is "good value".Analysts at Jefferies said the loan growth in the quarter and 6% growth in retail current accounts and 12% in commercial accounts "should bode well for the structural hedge and the future NIM performance of the group".With a "benign" impairments backdrop and strong capital levels, the results "are consistent with our view and we continue to see consensus upgrades" in store, with the shares offering "an attractive margin of safety at current levels".