What’s Telling Me to Buy Lloyds Banking Group PLC Today

Royston Wild considers the investment case for Lloyds Banking Group PLC (LON: LLOY).

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Today, I am looking at Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US), and deciding whether to deposit my investment funds in the high-street banking giant.

Recovery plan in full swing

Lloyds showed in this month’s half-yearly report that its recovery plan continues to display solid momentum. The bank saw underlying profit leap to £2.9bn during January-June, up substantially from £1.04bn in the corresponding 2012 period. And its net interest margin improved to 2.01% from 1.93% in the initial six months of last year.

The firm has made outstanding headway in restructuring since the 2008/2009 financial crisis battered the balance sheet, and said that its core tier 1 capital ratio increased to 13.7% from 12% in the same period last year.

And Lloyds is firmly on track to meet its non-core asset target of £70bn by the end of the year, a full 12 months ahead of schedule. The bank has further extensive cost-cutting measures up its sleeve ready to give earnings a further boon — costs fell 6% in the first half to £4.75bn, it announced.

Experts banking on stunning earnings recovery

City analysts now expect Lloyds to snap back from losses per share of 2p last year to record earnings per share of 4.9p in 2013, with a 27% increase to 3.2p anticipated for next year.

The bank currently deals on a P/E ratio of 15.7 for 2013, and which is forecast to drop to 12.4 next year. Although this may not appear at first glance to be appealing for a firm bang in the middle of a turnaround strategy, I believe that vastly improving earnings and dividend prospects are just around the corner. And this is still better than a forward reading of 15.9 for the FTSE 100.

An engaging dividend story

The part-nationalised bank said during this month’s financial update that it plans “to commence discussions with our regulators in the second half of this year on the timetable and conditions for dividend payments”.

And analyst consensus points to a full-year payout of 0.66p in 2013, which is anticipated to increase to 2.11p next year. Therefore a yield of 0.9% for this year is expected to rise to 2.8% in 2014, and although short of the current 3.2% forward average for the UK’s 100 largest-listed firms, makes an exciting proposition for income investors in my opinion.

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> Royston does not own shares in Lloyds Banking Group.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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