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Lloyds remains top pick despite profits plummeting amid Covid-19 crisis

The UK lender published a disappointing set of first quarter results last week, but even with profits plummeting at Lloyds, the bank remains the top pick for analysts covering the sector.

Lloyds Source: Bloomberg

Lloyds unveiled a disappointing set of first quarter (Q1) results last week, with profits down 95% after the bank was forced to take a £1.4 billion charge to cover a surge in bad loans as a result of the Covid-19 crisis.

Since releasing its Q1 results, Lloyds shares have fallen 12%, with the stock down 52% year-to-date.

‘The coronavirus pandemic presents an unprecedented social and economic challenge which is having a significant impact on people and businesses in the UK and around the world,’ Lloyds Group CEO António Horta-Osório said.

‘The economic outlook is clearly challenging with the longer term outcome dependent on the severity and length of the pandemic and the mitigating impact of Government and other measures in the UK and across the world.’

‘Throughout this period of uncertainty we will continue to work closely with Government, regulators and other authorities and use the strength of our balance sheet and business model to ensure that we play our part in supporting our customers and the UK economy,’ Horta-Osório added.

Lloyds remains top pick among analysts

Despite its disappointing set of quarterly results, Lloyds remains the top pick among analysts covering the UK banking sector.

In fact, all analysts covering Lloyds, except Citigroup, left their assessment unchanged in May, with the US-based investment bank actually upgrading it rating to ‘buy’ and issuing a target price of 42p per share, implying a potential upside of 40%.

Lloyds closed at 30p per share on Tuesday.

The rationale behind analysts assessment of Lloyds comes down to the bank’s relatively healthy balance sheet, well-discounted asset quality risks and its likelihood of emerging from the Covid-19 crisis in a far stronger position than its rivals.

Lloyds is certainly looking like the best of a bad bunch following UK banks latest earnings season, with Barclays reporting a 38% decline in pre-tax profits to £913 million, following its £2.1 billion charge to cover bad debts – which it believes will soar to as much as £4.5 billion by the end of 2020.

Then there was HSBC which, earlier this week, told investors that it may have to set aside £8.8 billion to cover loan losses in 2020, with the Covid-19 pandemic putting a major economic dent in its main markets across Asia and Europe.

How much does it cost to buy UK shares with IG?

There are two ways to ‘buy’ UK shares with IG: trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

CFD trading Share trading
Action Buy 16,000 share CFDs Buy 16,000 shares
Capital required to open £2000 £10,000
Total fees £20.88 £16

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