Lloyds Banking Group Unveils Robust Q3 Results, Sets Sights on 2026 Targets
Lloyds Banking Group (LLOY.L) announced strong financial performance in the third quarter of 2024. The statutory profit after tax for the first nine months reached £3.8 billion, with a return on tangible equity (ROT) of 14%. The company's net interest income increased to £3.2 billion in the third quarter, marking a 2% rise, while the net interest margin (NIM) was recorded at 2.95%.
Lloyds also reported an increase in loan balances to £457 billion, largely driven by a £3.2 billion rise in mortgage lending. The bank's asset quality remains robust, with impairment charges at a low level of £273 million year-to-date. Looking ahead, Lloyds maintains confidence in its 2024 guidance and strategic aims for 2026, including a ROT above 15% and a cost-to-income ratio below 50%.
Key Points:
- Statutory profit after tax for the first nine months of 2024 was £3.8 billion.
- ROT reached 14%, with net income amounting to £12.7 billion since the beginning of the year.
- Net interest income in the third quarter rose by 2% to £3.2 billion, with NIM at 2.95%.
- Loan balances increased to £457 billion, mainly propelled by a £3.2 billion rise in mortgages.
- Strong asset quality, with impairment charges standing at £273 million year-to-date.
- Operating costs in 2024 are anticipated to be approximately £9.4 billion.
- Tangible net asset value per share rose to 52.5 pence.
Company Outlook:
- Lloyds anticipates a net interest margin above 290 basis points in 2024.
- Asset quality ratios are expected to remain below 20 basis points.
- Capital generation remains strong with a CET1 ratio of 14.3%.
- The bank is well-positioned for future growth and strategic initiatives.
Challenges:
- Operating costs increased by 5% year-on-year to £7 billion.
- Motor finance loans decreased by £0.6 billion due to securitization and dealership stock reductions.
Opportunities:
- Lloyds expects its CET1 ratio to decline to 13.5% by the end of 2024 and foresees a modest positive impact from Basel 3.1 by 2026.
- Strong mortgage growth in the third quarter, with a market share entry of 21.5%.
- UK retail segment grew by 7% since the start of the year, with personal loans rising by £0.6 billion.
Concerns:
- Share buybacks continue but occur at higher prices, raising strategic questions around dividends and potential acquisitions.
Q&A Highlights:
- Management addressed questions on hedging tailwinds, explaining complexities in hedging and yield dynamics.
- Despite expected rate cuts, net interest margin is projected to increase gradually in 2025.
- Motor finance litigation outcomes were generally in the company's favor, with the FCA's motor commission review expected to complete by May 2025.
Lloyds Banking Group demonstrated strong financial performance in the third quarter of 2024, focusing on maintaining robust asset quality and boosting mortgage growth. Strategic investments and disciplined cost management contributed to its positive outlook in a moderate macroeconomic environment.
With strong capital generation and ongoing strategic initiatives, Lloyds is well-positioned to achieve its 2026 targets, including a competitive ROT and cost-income ratio. The bank's management is engaged with government growth proposals and preparing for the impacts of Basel 3.1 regulations.
As Lloyds looks ahead, it continues to balance shareholder returns with strategic investments, consolidate gains, and enhance incremental revenue growth.
InvestingPro Insights: Lloyds Banking Group's strong financial performance in Q3 2024 is supported by data from InvestingPro. The company's trailing twelve months' P/E ratio stood at 8.68, with an adjusted P/E of 7.73 as of Q2 2024, indicating relatively low valuation compared to earnings. This aligns with an InvestingPro Tip stating, "Trading at a low P/E ratio relative to near-term earnings growth."
The bank's strong profit and ROT are reflected in its $48.86 billion market capitalization. Additionally, Lloyds showed an impressive 18.82% revenue growth over the trailing twelve months as of Q2 2024. This growth trend supports the company's positive outlook and 2026 strategic goals.
Another InvestingPro Tip highlights that Lloyds has "Increased its dividend for 4 consecutive years," consistent with the strong capital generation and shareholder focus mentioned in the article. The current dividend yield stands at 3.37%, offering an attractive income proposition for investors.
It should be noted that InvestingPro provides 9 additional insights for Lloyds Banking Group, offering investors a more comprehensive analysis of the company's financial health and market position.