Lloyds share price: 5 things to look out for in its Q1 results

Investors are expecting good things from Lloyds, a lender that has focused on cost-cutting and strengthening its profit margin to drive a recovery in its share price ahead of its Q1 earnings.

Lloyds will release it Q1 trading update on Thursday, with investors expectations high after the bank continues to focus on reducing expenditure and improving its profit margin in a bid to recovery the ground its share price has lost.

Lloyds earnings guidance

The lender is expected to report earnings of 2p a share on Thursday, representing a 0.1% decline over the year, while revenue is expected to also fall by 1.5% to £4.5 billion.

It is worth noting that the bank has beaten earnings estimates in six of the last eight quarters and in seven of the last eight for revenue.

Can Lloyds maintain its margin?

UK lenders have had to contend with a particularly challenging banking environment, plagued by a myriad of macroeconomic headwinds which have hampered returns.

However, Lloyds has seen its net interest margin recover and find its footing at 2.9% after focusing its attention on reducing costs which helped the bank to bring its spending targets forward to the full-year 2018 results, exemplifying the progress that it has made in recent years.

PPI provisions continue to wind down

Investors can breathe a sigh of relief now that the bank’s payment protection insurance (PPI) pay-outs have diminished, falling from a peak of almost £4 billion back in 2015 to around £0.7 billion in 2018, with that number expected to fall again this year.

Total provisions for PPI by the end of 2018 were almost £20 billion for Lloyds alone, marking one of the most remarkable transfers of capital from institutions to ordinary consumers, and arguably a more effective form of monetary stimulus than the Bank of England’s (BoE) quantitative easing (QE) programme.

Cost-cutting remains vital to profitability

Over the last four years, Lloyds has cut its interest expenses on deposits by more than 60% and slashed debt securities by more than 45%. This cost-cutting measure has played an important role in helping the lender return to profitability and restore its dividend pay-out to shareholders.

Investors will be interested to see how the bank plans to make further reductions in expenditure to ensure the bank’s balance sheet remains healthy.

Many of the lender’s customers have been moved to current accounts from savings accounts, reducing the amount the bank is forced to pay in interest.

However, more than 33% of Lloyds deposits are still in savings accounts, indicating that there is still cost-savings to be made.

Brexit looms large over Lloyds

The UK financial services sector continues to be plagued by the uncertainty surrounding Brexit, with a hard exit still a possibility and no clarity over Britain’s future trading relationship with Europe likely until nearer the new October 31 deadline.

But if Lloyds continues to reduce costs and improve its net interest margin, while exhibiting good risk management with regards to lending the bank could weather the Brexit storm.

Low loan-to-value rates on its large mortgage book will help insulate the bank from a downturn in the housing market, while credit quality has remained solid in both mortgages and credit cards.

At 8.1 times forward earnings, Lloyds is still around one standard deviation below the five-year average of 9.1, and well below the peak of over ten times forward earnings seen in early 2017. The five-year low of 6.6 times forward earnings seen at the end of 2018 provided an attractive entry point, and the shares have duly rallied.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

European Central Bank meeting

Learn about how the ECB meeting affects interest rates and price stability ahead of the next announcement on 24 October 2019.

  • How might the next meeting affect the markets?
  • What are the key rate decisions to watch?
  • Why is the Governing Council announcement important for traders?

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Sell
Buy
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sell
Buy
Updated
Change

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Sell
Buy
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
China 300
-
-
-
-

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.