Lloyds: Still 10x P/E & 4%+ Dividend Yield After Recent Rally
(Preview) Company Update (LLOY LN) (Buy)
Summary
Lloyds shares have risen 17% since we reinitiated coverage in July, but still have a P/E of about 10x and a Dividend Yield of 4.3%.
Net Interest Income has already benefited much from higher rates, and we expect further benefits as well as more rate hikes.
Credit losses remains the biggest risk, but Lloyds’ loan book is relatively high-quality and losses should be manageable in size.
We expect further dividend increases and more buybacks in 2023, as Lloyds' capital ratio is 1.5 ppt higher than its target.
With stock at 49.24p, we expect an exit price of 58p and a total return of 32% (10.5% annualized) by 2025 year-end. Buy.
Introduction
We review our Lloyds Banking Group plc case after shares have gained 18% (in U.K. pounds, including dividends) since we reinitiated our coverage in July.
Lloyds still looks attractive on relatively low expectations. Return on Tangible Equity (“ROTE”) is expected to be around 13% in 2022, and we now believe it can be at 10% for the next few years. Net I…