Why Lloyds Banking Group PLC Has Great Growth Prospects

Earnings are storming back for Lloyds Banking Group PLC (LON: LLOY).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

LloydsThere’s little doubt that Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) is bouncing back to earnings growth after a few years in the wilderness.

And the share price has been storming back, too, putting on 50% over the past 12 months to reach 84p.

Sadly, the sign of the black horse has been an indicator of wealth destruction over the past three years, with a massive £3.5bn pre-tax loss reported for 2011. But the year to December 2013 should set shareholders back on the road to profits.

Here’s what City analysts are currently forecasting:

Dec EPS Change P/E Dividend Change Yield Cover
2013 5.29p n/a 15.8 0p n/a 0% n/a
2014 7.04p +33% 11.8 1.9p n/a 2.3% 3.7x
2015 7.82p +11% 10.7 3.7p +95% 4.4% 2.1x

Full-year 2013 results should be with us tomorrow, 13 February, and they’re unlikely to be too far from those expectations.

Beating expectations

In an update on 3 February, issued ahead of the full figures, Lloyds told us that it expects to report an underlying profit of £6.2bn for the year, which is ahead of the analysts’ consensus and better than double 2012’s profit. We also heard that the bank “expects to report a small statutory profit before tax for the 2013 financial year“.

How that will translate into earnings per share we can only guess at the moment, but it should form the basis of decent future growth.

Future growth

For 2013, Lloyds did still have to squirrel away a fair-sized chunk of cash to cover the ongoing costs of past naughtiness — in Q4, the bank earmarked a further £1.8bn to cover the mis-selling of payment protection insurance as the numbers of successful claims have been higher than expected.

And £130m was allocated to cover further costs from the selling of inappropriate interest rate hedging products to smaller businesses.

How much will be set aside in future years remains to be seen, but it’s sure to be less than in 2013 — and it won’t be long before those costs are a thing of the past and all that cash can go towards Lloyds’ burgeoning bottom line.

Dividends

That bottom line, of course, means we’re set for a resumption of dividends. After discussions with the Prudential Regulatory Authority, Lloyds is planning to restart dividend payments in the second half of 2014 “at a modest level“, and a progressive policy should lead to a payout of “at least 50% of sustainable earnings“.

Some were expecting dividends to restart for 2013, but there’s no rush — and that earnings growth potential still makes Lloyds shares look like an attractive prospect to me, on a two-year-out P/E of under 11.

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.

> Alan does not own any shares in Lloyds.

More on Investing Articles

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »