First, he now expects a net interest margin of more than 2.8 percentage points, compared to an earlier forecast of 2.7 percentage points and last year’s outcome of 2.54 percentage points. Secondly, the asset quality ratio is expected to fall below the previous forecast of 0.2 pc. will come true. That means fewer credit losses than expected.
Put that next to an unchanged operating expense forecast of £8.8bn and Lloyds is now looking for a return on tangible equity of around 13 per cent, up from 13.8 per cent last year when Nunn had initially steered the market to something like 11 percent expected for 2022.
Any improvement in the earnings forecast will bolster confidence in Lloyds’ ability to return excess capital to shareholders through dividends and buybacks. The expected dividend yield represents a premium to the FTSE 100 and the earnings multiple comes with a discount.
This is already causing a lot of potential pain and it may not take much to give investors a more positive view of the stock in light of the low expectations. Lloyds still looks very cheap. Keep buying.
Questor says: buy
Share price at closing: 45.06p
As may be the case with Beazley, the fellow non-life insurer and syndicate manager of Lloyd’s of London discussed here last week, the outlook appears to be improving in Lancashire.
Last week’s first half results showed a sharp increase in gross premiums, an increase in profits and strong underwriting performance. Estimated losses related to the Russian invasion of Ukraine so far are at the lower end of management’s estimated range at $22 million (£17.9 million).
In the non-life business, a ‘combined ratio’ of less than 100 pc. good news, because this means that the underwriting losses and costs are lower than the written premiums – in other words, the insurer makes a profit. Lancashire’s combined ratio in the first half was only 78 pc, indicating good momentum in the underwriting margin. Meanwhile, price increases help sales.
An unchanged dividend of $0.05 per share fills the pot and the combination of rising premiums and a strong combined ratio could set the stage for further payments later. It may not have offered a special dividend since 2018, but Lancashire has already paid out a total of just over 820 pence per share since its listing in 2008.
That figure looks good next to the current share price of 441p and with further dividends on the horizon, Lancashire could re-establish itself as an attractive returns game.
Meanwhile, the shares are also trading at a modest discount to their book value of 465p.
We’ll stay with Lancashire. Delay.
Questor says: wait
Share price at closing: 441p
Russ Mold is an investment director at AJ Bell, the stockbroker
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