More on Lloyds TSB
Lloyds TSB: 2006 H1 results
Lloyds TSB reported that it expects to deliver “a strong trading performance” for the first half of 2006.
The bank said that corporate lending, the main driver of growth last year has continued to perform well while retail banking has shown substantial improvement, with volumes said to be “well ahead” of last year. Bad debts in retail banking have however continued to rise.
A slow down in unsecured lending has been offset by good growth in savings and investment products, especially in bancassurance. Costs are said to be under control, despite increased expenditure to improve efficiency. Bad debts in retail lending have continued to rise, albeit at a slower rate than in the first half of last year.
Sales of pensions, life insurance, long term savings products and investments have performed well, a trend we have seen elsewhere, especially amongst the life insurance companies. The bank said new business margins have remained fairly stable, compared to last year, as improvements in individual product margins have been offset by changes in sales mix. The bank has seen strong sales growth in low margin OEIC (open-ended investment company - similar to a unit trust) products.
In corporate banking, income growth has been steady but margins have contracted due to changes in sales mix. A programme of efficiency improvement is expected to deliver savings of £30m in the first half. However volatility in the equity markets is expected to cost the bank some £91m.
Lloyds TSB is a reasonable performer but looks unlikely to outperform the sector, or even match the performance of the best banks in the sector. It offers investor’s exposure to domestic UK banking (both retail and corporate). It is not as heavily weighted towards mortgages as HBOS or Bradford & Bingley although it does carry a substantial mortgage portfolio.
Given the weakness in the consumer market and the housing market, shorter term prospects are not the best, although, from a growth point of view, the stock would be worth looking at once both these markets have bottomed out. The principal attraction of the stock however is its yield, whish better than the sector average.
The share trades at 524.5p, on a prospective PE (2007 earnings) of 10.4x, within the sector range, with a superior yield of 6.7%.
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