RE: BROKER RATING1 Mar 2022 16:18
Profits up and the dividend is back
Lloyds generated a pre-tax profit of £6,902m last year, compared to £1,226m in 2021. However, the main difference between these two numbers is the bank’s £4.3bn allowance for bad debt in 2020.
Stripping out bad debt charges and other one-off costs, Lloyds’ underlying pre-tax profit rose by 6% to £6,833m in 2021. However, although profits rose, they were still slightly below analysts’ forecasts. This may be one reason why the Lloyds share price fell on Thursday.
Fortunately, the dividend was reinstated as expected. Shareholders will receive a total payout of 2p per share for 2021, giving a trailing dividend yield of 4%. There’ll also be a £2bn share buyback, which could provide some support for the share price.
£4bn growth plan
Lloyds’ new chief executive Charlie Nunn wants to boost growth. Over the next five years, he plans to invest £4bn to help Lloyds sell extra products to existing customers and attract new customers. Nunn is targeting the “mass affluent” — people with income or wealth of more than £75,000.
Lloyds says that, on average, its customers have 2.4 products with the bank, but seven financial products in total. Nunn wants to persuade customers to switch products such as insurance and wealth management from other providers to Lloyds. He reckons that this could generate £1.5bn of extra revenue each year by 2026.
To me, it looks like he wants to reduce Lloyds’ dependency on interest income from mortgages. Diversifying the group’s income in this way makes sense to me.
As the UK’s largest mortgage lender, Lloyds is heavily exposed to the housing market. After a decade-long housing boom, I think there’s some risk of a slowdown if interest rates continue to rise. That could hit Lloyds’ profits.
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