Lloyds: Evident Stability in Q1 Results, 8.4x Normalized P/E & 5%+ Dividend Yield

Company Update (LLOY LN) (Buy)

Highlights

• Lloyds shares are attractive on undemanding assumptions

• Shares are below TNAV and offer a 5.2% Dividend Yield

• Deposits fell just 0.5% in Q1 and Net Interest Margin rose

• 2023 guidance was reaffirmed, including a 13% ROTE

• At 45.76p, we see a 44% upside (15.9% p.a.). Buy

Introduction

Lloyds Banking Group released Q1 2023 results on Wednesday (May 3); shares have fallen 6.7% in the past month.

We believe Lloyds is a fundamentally stable business and its stock is attractive on undemanding assumptions. Shares are at 0.92x Tangible Net Asset Value, offer a 5.2% Dividend Yield and we believe have an 8.4x normalized P/E.

Q1 results support our investment case. Deposits continue to be stable, falling just 0.5% from Q4. Net Interest Margin (“NIM”) was flat sequentially, and management expects a small decline in Q2 then stabilization in H2. Loans were down slightly, but largely due to one-offs, and the structural hedge has continued to provide a tailwind. Credit losses have remained low. Manage…