Lloyds results hailed by analysts, but election uncertainty remains

1st May 2015 09:21

Lloyds impressed investors and analysts alike with its first-quarter results on Friday, though some brokers highlighted uncertainty ahead of the election and regarding the government's stake.Underlying profits rose 21% year-on-year in the first three months of 2015 to £2.18bn, well ahead of the consensus forecast of £1.87bn, as impairments dropped 59% to £177m.Total income increased by 3% to £4.64bn, helped by a 33 basis-point improvement in the banking NIM to 2.65%. The group now expects the full-year NIM to exceed original guidance of around 2.55%.Lloyds was also able to improve its capital position with its common equity tier 1 (CET1) ratio rising 60bp over the quarter to 13.4%."The Lloyds business is looking increasingly healthy, while the strength of the balance sheet and income growth augur well for the proper resumption of the dividend later in the year," said analyst Richard Hunter from Hargreaves Lansdown Stockbrokers.He said that the market consensus opinion of the shares as a 'buy' "is most likely to remain intact following this update".Gary Greenwood from Shore Capital said he expected the shares to react positively to the results, but material upside "may be limited by market concerns about the outcome of the election". ShoreCap kept a 'hold' rating on Lloyds.Greenwood reckons that a Labour government or Labour-led coalition is likely to be "a more challenging outcome for banks" than a Conservative or Conservative-led one.Other things that will weigh on the bank are the outcome of the Competition and Markets Authority review into retail and SME banking due next year, and the overhang from uncertainty surrounding the government's remaining 20% stake, Greenwood said.Similarly, Augustin Eden from Accendo Markets said investors will be "watching Lloyds like hawks" ahead of the elections next week, with the incumbent government pledging to offload its final holding."The bank may finally be able to do all those things banks do that annoy the hell out of middle England yet make them the high beta performers they are: pay whopping bonuses and healthy wage packets to attract and retain top profit-generating talent," Eden said.He said that at current levels, "Lloyds Banking Group could be the bargain of the decade".The stock was up 4.1% at 80.57 by 10:01.