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Lloyds [LLOY] share price is up 28% in 2019, but a no-deal price correction looms?

With Q1 coming to a close, Lloyds [LLOY] continues to demonstrate its potential. Year to date its price has gained more than 26% this year while dividend payouts sit at 3.21p per share. Shareholders have received a piece of a £4bn dividend payout pot in 2019.Lloyds 1-year share price performance, CMC Markets, as at 18 March 2019

 

Another promising sign of Lloyds’ return to form has been its price to earnings ratio which stands at 11.57 as of 15 March. Despite its revenue which, according to its latest set of financials, was at a five-year low of £22bn, its dividend yield stands at a five-year high of 6.19%. 

This was compounded by the news that its share buyback scheme started well. Lloyds announced that it would be starting the buyback scheme in late February. Last week, the bank bought 11.3m shares from US investment bank Morgan Stanley at an average of 64.54p per share. The scheme is expected to generate roughly £1.75bn and, when accounting for the average share price, Lloyds would have spent approximately £729.3m. 

 

Market cap£46.75bn
PE ratio (TTM)11.94
EPS (TTM)5.50
Forward annual dividend yield5.03%

Lloyds stock vitals, Yahoo finance, as at 18 March 2019

 

 

Brexit problems?

As for all of Europe, the undefinable damage that Brexit is set to cause on its business remains a concern for short-term prospects. With less than two weeks to go until the UK’s scheduled exit from the European Union, the UK’s largest bank by headcount has arguably the most to think about of any of its competitors.

Worrying sentiment was once again spread last week when deputy governor of the Bank of England Sir Jon Cunliffe indicated that a disorderly Brexit remains the biggest risk to Britain’s financial system. 

Cunliffe said: “If [a no-deal Brexit] occurred, it would almost certainly lead to a correction in UK asset prices and losses for UK banks.” Lloyds employs a reported 75,000 staff in the UK at present. In the event of a no-deal Brexit, it is thought that a select number of staff will be transferred to its Berlin office, while it is also understood to be protecting its assets by establishing subsidiaries in the financial hubs of Frankfurt and Luxembourg. Rival banks have taken similar measures but there is no guarantee that this will be a path to Brexit immunity, or even resistance, in the coming months.

75,000staff

Number of UK employees

 

Fraud investigation

More good news for the Lloyds hierarchy came with the news that a probe into alleged fraud at the Reading branch of HBOS (which LLoyds bought in 2009) will now likely be delayed until 2020. 

Retired High Court judge Dame Linda Hobbs launched the initial inquiry in 2017 into the level of knowledge Lloyds executives had of fraud in HBOS operations when it bought the Scottish group. It was alleged that a handful of corrupt employees at the Berkshire brand of HBOS employed a particular group of insolvency and restructuring consultants for their small business customers in exchange for bribes. The fraud has been suggested to have run deeper than just in the Reading branch with indications it could have spread West into the Bristol office, too.

The news was first reported on Reuters last week and interviews will begin from this Autumn. It is expected that everyone from junior bankers through to chief executive Antonio Horta-Osorio will be required to provide testimony in the process.

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