Lloyds Banking Group saw its share price jump around 5% yesterday despite net profits coming in slightly below analyst forecasts for £4.6 billion. The actual figure of £4.4 billion still represented a 24% improvement on 2017. However, the bank delivering the sweetener of a hike in dividends and announcing a buy-back back programme was enough to win the enthusiasm of investors. From a Tuesday close of 58.2p, the Lloyds share price had reached 61.32p by close yesterday before gaining another 1% before this morning’s market open.
Thursday morning has however seen that after-hours rise pared to just over 0.4% in early trading. Nonetheless, Lloyds relatively solid overall performance combined with the announcement of a final dividend of 2.14p a share, 3.21p in total over the year, can be considered as a good result for investors. Particularly within the context of the buy-back programme, which will represent the equivalent of 2.46p a share.
The 24% leap in net profits was achieved on net income growth of just 2% to £17.8 billion and pre-tax profits growth of 13% to just shy of £6 billion. An easing of PPI compensation pay-outs to just £750 million over 2018, taking the total to £19.4 billion, was a major factor in improving net profits.
As the UK’s largest mortgage lender and second largest retail bank by assets, Lloyds’s exposure to the country’s economy means its performance is a carefully watched indicator of the financial health of households. Chief executive Antonio Horta-Osório commented that 2018 saw the UK economy remain healthy despite Brexit uncertainty as GDP growth was maintained and record employment levels reached. He did, however, concede that there was some doubt around future prospects.
Despite impairments rising by 18% over the year Lloyds stated that it did not see any increase to credit risk and Lloyds’ common equity tier one capital ratio sits at a healthy 13.9%, unchanged from 2017 despite the £4 billion returned to shareholders. The capital ratio is considered a key indicator of a bank’s financial strength and ability to absorb financial shocks. It measures core capital relative to total risk-weighted assets and has to be at least 6%.