Lloyds share price: what to expect from Q1 results

Cost savings, a solid net interest margin and a recovery in the share price make Lloyds one to watch ahead of Q1 earnings.

When is Lloyds’ earnings date?

Lloyds reports earnings for its first quarter (Q1) on 2 May 2019.

Lloyds’ results preview: What does the City expect?

Lloyds is expected to report earnings of 2p per share, down 0.1% over the year, and revenue of £4.5 billion, down 1.5% from a year earlier. The firm has beaten earnings estimates in six of the last eight quarters, and in seven of the last eight for revenue.

European banks, including those in the UK, have not enjoyed the good years of returns seen by many of their bigger US cousins. However, Lloyds has seen its net interest margin recover and remain steady at 2.9%, and a solid focus on cost-cutting has borne fruit. Spending targets were brought forward to the full-year 2018 results, highlighting the progress made in recent years.

Lloyds retains an average of 18% market share across the UK banking market, with 72% of revenues coming from net interest income. In recent years, the amount being put aside for payment protection insurance (PPI) payouts has diminished, dropping from a peak of almost £4 billion in 2015 to around £0.7 billion by 2018. 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.

Since 2014, the bank has cut its interest expenses on deposits by over 60%, and on debt securities by more than 45%. This cost-cutting effort has been instrumental to Lloyds return to profitability, and the restoration of its dividend. Customers have been moved to current accounts from savings accounts, reducing the amount paid in interest. But almost two-fifths of Lloyds’ deposits are still in savings accounts, indicating that there are still cost-savings to be made.

While Lloyds retains a significant chunk of the mortgage market, it has taken steps over the past few years to expand its market share in consumer finance and loans to smaller companies. Personal mortgages as a proportion of its overall loan book have fallen by around 5%, while commercial loans are now around 25% of the loan book, compared to 20% in 2015.

Brexit looms over Lloyds, as it does for all UK banking and financial services firms. A hard Brexit, still a possibility despite Parliament officially ruling out this eventuality, is likely to hit financial firms hard. But with careful lending, Lloyds may escape some of the worst of it. 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.

How to trade Lloyds’ Q3 results

The average one day move for Lloyds shares on results day is 2.26%, according to data from Bloomberg. However, current options pricing collated by Bloomberg indicates that a move of 4.1% is expected for Q1 results day.

Of the 27 analyst recommendations for Lloyds, there are currently 17 ‘Buys’, seven ‘Holds’ and three ‘Sells’ ratings. The current target price overall is 73p, compared to the current price of 63.5p.

Lloyds share price: technical analysis

Lloyds hit a bottom around 48p back in December, and since then has rocketed. It once again neared 67p for the third time in two years (previous instances being May 2017 and then January 2018). In February 2019 the shares broke above trendline resistance from the January 2018 highs, and continued to rally.

The uptrend has been supported by rising trendline support from the December lows, with a dip to the area around 60p finding buyers in mid-March. The uptrend has been characterised by higher highs and higher lows since January, and a break above 67p would provide a powerful bullish move. Above 67p the 2015 high at 77p would come into play.

A resurgent bearish view on Lloyds would require a move below the early April low at 59p, having been key support in March and April, and previously resistance back in August and September last year.

Lloyds buoyed by strong fundamentals and technicals

For all the trouble surrounding UK banks, there is much to like about Lloyds. The business seems to be in excellent shape, with cost savings on target and strong growth in income, supported by a steady net interest margin. Brexit remains a worry, but even here Lloyds looks better-placed than others to weather a downturn. The chart is also much more encouraging than at any time over the past year, and bulls will be looking for a break above 67p to reignite the uptrend.

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