Lloyds Q3 statement: how will the share price react?

Lloyds faces more PPI and Brexit hurdles as it heads towards Q3 earnings, while volatility in the share price has been impressive.

When is Lloyds’ Q3 statement released?

Lloyds publishes its third quarter (Q3) earnings statement on 31 October.

Lloyds Q3 statement: what does the City expect?

Lloyds is expected to deliver underlying pre-tax profit of £2 billion, according to consensus estimates, while overall pre-tax profit will be lower due to expectations of £1.2 billion-£1.8 billion in extra producer price index (PPI) provisions. Given that RBS has had to set aside more than expected in PPI provisions for its Q3 results, markets will be expecting a similar performance from Lloyds, which may help to dilute the impact of a bigger PPI provision on the share price.

Net interest margin is forecast to decline by around 3 basis points (bp), in line with the previous two quarters, reducing income from interest charged on loans, reflecting the environment of lower interest rates that has prevailed over the past six months.

For Lloyds, the risks of Brexit and a slowdown in the UK economy remain. While the UK now appears to have a deal with the EU in place, it has yet to pass Parliament, and now a general election by the end of January 2020 seems possible. Even if a deal is in place, the UK only has a limited time to agree a new long-term deal with the EU, meaning that a sudden no-deal exit is still possible.

While the bank continues to trade at a relatively low valuation, at 8.3 times forward earnings, below the five-year average of 8.9, it is no longer as cheap as it was in August, at 6.4 times earnings. The current yield of 5.4% is down from the recent highs of 6%, but continues to remain attractive for income investors, and remains well covered at 1.7 times earnings.

How to trade Lloyds’ earnings update

The average move on results day for Lloyds is 4.2%, while the last update in July saw a move of 3.2%. Of 27 analysts covering the stock, 14 have ‘buy’ recommendations, ten have ‘holds’ while only three are ‘sells’. The average target price is 64.45p, compared to a current price of 60.46p.

Lloyds share price: technical analysis

It has been a rollercoaster 2019 for Lloyds, contrasting with the rather relentless downtrend of 2018. This year has seen the shares rally from 46p to 65p, before crashing back to 48p, followed up by a rally to 64p. Investors can be forgiven for feeling rather dizzy, while traders will be hoping for additional volatility.

The drop back from 64p has been sharp, but it has not entirely dispelled the bullish impression created since August. Weakness has, for now, been stifled at 60p, while further declines could head to support at 58p and 56.2p. In the longer term, the 65p area has been a barrier since early 2017, so a close above here is needed to provide a more bullish view in the longer term. On the flip side, bears will be frustrated unless they can go below 45p and the low of December 2019.

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