Lloyds (LLOY Stock) share price hits one year high as profits beat expectations

With Lloyds Banking Group share price currently trading at its highest levels this year, it is important to also note they are still well below the pre-pandemic highs of 2020, despite clear evidence that the bank is in better shape now than when the shares were trading above 60p at the end of 2019.

Today’s Q1 numbers would appear to bear that out, despite the challenges of the last 12 months, as the bank reported Q1 profits that more than matched its annual performance in 2020.

The last ten years or so have been quite a long road for Antonio Horta Osorio as he steps away for his last quarter as CEO, however he can look back at a bank that is in much better shape than which he found it, not that you’d know it from the recent share price performance.

There have been setbacks along the way, with the coronavirus pandemic the latest one to come his way, however at no time were there any questions as to whether the bank would be able to deal with the challenges posed by the virus.

When Lloyds reported its full year numbers back in February statutory profits for Q4 came in at £792m, well above expectations of £471m, taking statutory full year profits after tax to £1.39bn, a decline of 54% from last year, with loan loss provisions for the year coming in at £4.2bn, accounting for most of that decline, while the dividend was resumed.

In terms of its guidance for this year the bank was cautious, saying that the outlook was highly uncertain given that more of its customers could well find themselves in financial difficulty in the months ahead, due to the latest lockdown.

Nonetheless, expectations were for a stabilisation in 2021, and that net interest margins were expected to remain above 240 basis points over the next 12 months.  

Leading up to today’s Q1 numbers there was an expectation, given the improved economic outlook, that we might see some of the provisions that were set aside in 2020 in respect of loan losses added back.

Today’s Q1 numbers have borne out that optimism with statutory profits of £1.4bn, beating expectations due to the release of credit loss provisions of £323m.

The bank also said it will be accruing dividends with the intention to resume a progressive and sustainable dividend policy.   

Carrying on the positive theme lending margins are expected to improve over the rest of the year with management saying it expects net interest margin over the year to be in excess of 245 basis points, up from 240 at the end of the previous quarter.

Loan demand for housing appears to have been strong over the last quarter with its open mortgage book seeing a 6% increase from a year ago, to £283.3bn, and 2% rise over the quarter, though credit card spending was down 19% over the year, and 6% on the quarter at £13.5bn.

Total customer deposits are also much higher, with the amount of cash in retail current accounts up 29% over the year.

What’s interesting about these lending numbers is that they would appear to support the argument that UK consumers have been holding back, and that as restrictions continue to get eased, we could well see a wave of spending in the summer months, barring any setbacks in the vaccination program, or new variants.  

All in all, today’s numbers from Lloyds appear to mark a decent postscript for outgoing CEO Antonio Horta Osorio, with the dividend resumed, and barring any mishaps a bank that looks well set to take advantage of a summer recovery in the UK economy.