UBS has updated its price target on Lloyds Banking Group Plc. (LON:LLOY: LN) (NYSE: LYG), increasing it to GBP0.63 from GBP0.61, while keeping a Neutral stance on the stock.
The adjustment follows Lloyds' third-quarter financial results, which surpassed market expectations.
Lloyds Banking Group reported an underlying profit before tax (PBT) of £1,853 million for the third quarter of 2024, marking an 11% rise above the company consensus.
The bank's net interest income (NII) came in 1% above forecasts, and other income was 3% higher, resulting in a 2% increase in total income. This was partially counterbalanced by a 4% rise in lease depreciation, leading to a 1% uptick in net income.
Operational expenditures were in line with expectations, while remediation costs were half of what was anticipated, contributing to a 4% increase in pre-provision profit. Loan impairments were notably lower, at 15 basis points of loans, aided by a £77 million one-time debt sale write-back. The underlying impairment rate stood at 25 basis points.
In other recent news, Lloyds Banking Group has reported a strong financial performance for the third quarter of 2024, boasting a statutory profit after tax of £3.8 billion for the first nine months. The company's net interest income rose to £3.2 billion in Q3, marking a 2% increase. Lloyds also experienced growth in lending balances, reaching £457 billion, primarily due to a £3.2 billion increase in mortgages. The bank's asset quality remains robust, with a low impairment charge of £273 million year-to-date.
Looking ahead, the company is confident in its guidance for 2024 and strategic goals for 2026, including a return on tangible equity greater than 15% and a cost-income ratio below 50%. Lloyds anticipates the 2024 net interest margin to exceed 290 basis points and expects asset quality ratios to remain below 20 basis points.
While operating costs have risen by 5% year-on-year to £7 billion, Lloyds continues to demonstrate strong capital generation with a CET1 ratio of 14.3%. The company is well-positioned for future growth and strategic initiatives, balancing shareholder returns with strategic investments.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Lloyds Banking Group's financial performance and market position. The bank's market capitalization stands at $48.86 billion, with a P/E ratio of 8.68, indicating a relatively low valuation compared to earnings. This aligns with an InvestingPro Tip suggesting that Lloyds is "trading at a low P/E ratio relative to near-term earnings growth."
The bank's revenue for the last twelve months as of Q2 2024 reached $23.44 billion, with a robust revenue growth of 18.82% over the same period. This strong performance is reflected in the stock's impressive 72.08% total return over the past year, as noted by InvestingPro data.
InvestingPro Tips also highlight that Lloyds has raised its dividend for four consecutive years, which could be appealing to income-focused investors. However, it's worth noting that the company is "quickly burning through cash," which may impact future financial flexibility.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips on Lloyds Banking Group, providing a deeper understanding of the company's financial health and market position.
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