Broker snap: Lloyds still a 'hold' ahead of Q1 results, says Investec

Investec has kept its 'hold' recommendation and 50p target price for UK banking group Lloyds, saying that it unwilling to turn positive on the stock ahead of its first-quarter trading update on April 30th.The broker forecasts Lloyds' tangible net asset value (tNAV) per share to fall from 55p at the end of the 2012 to 53p by the end of the first quarter, reflecting the impact of the IAS19 accounting changes on employee benefits. This means that Lloyds is already trading on 0.9 times tNAV, Investec said."Near-term, the dilutive trickle of new equity issuance continues, while the medium-term revenue/return on equity (RoE) outlook is too weak to support a price objective beyond 50p," said analyst Ian Gordon.The broker expects Lloyds' RoE to recover to 7.9% by 2015, but this still remains below the cost of equity (CoE).Nevertheless, Lloyds is expected to return to "modest profitability" in the first quarter due to much lower exceptional items as well as a further one-off benefit from gilt sales. Investec is looking for earnings per share (EPS) of 0.9p, compared to 0.0p in the first quarter of 2012. This equates to a 'statutory' profit before tax of £1.1bn and an 'underlying' profit before tax of £1.2bn.As for this weekend's media speculation surrounding the possible disposal of Scottish Widows Investment Partnership (SWIP), Gordon said that "this would appear to represent 'no big deal' for Lloyds' shareholders"."EPS dilution would be modest given SWIP's current contribution of c.0.1p per annum, and we would expect any sale price to be below £1bn, suggesting only a small disposal gain."Despite the cautious comments, the stock was up 2.65% at 48.75p by 09:40 on Monday, recovering after its 2.46% fall over the last week.BC