Lloyds: 5% Dividend Yield & <10x P/E On Undemanding Assumptions

(Preview) Company Update (LLOY LN)

Summary

• Lloyds shares have fallen 27% from January, and now trade at 0.7x Tangible Book, 6.6x 2022 guided EPS and a 4.9% Dividend Yield.

• We believe a mid-teens annualized return is achievable on undemanding assumptions, even if Return on Tangible Equity is at just 8.5%.

• Lloyds' Return on Tangible Equity had historically comfortably exceeded 10% in most years, and is guided to exceed 11% in 2022.

• Strong businesses in Retail should offset weakness elsewhere. Interest rate increases will be a key tailwind. Credit losses will be limited.

• With the stock at 41.92p, we expect a total return of 52% (13.7% annualized) by 2025 year-end. Buy.

Introduction

We review Lloyds Banking Group PLC after shares again approached their 52-week low this month (July). We last published research on Lloyds in February 2020, having originally initiated a Buy rating on the stock in April 2019.

At our initiation, Lloyds had a mid-teens Return on Tangible Equity (“ROTE”) and was valued at a Price/Tangible Book Value (“P/…