Now that’s a surprise! The Lloyds share price went up despite disappointing results

Nicely, I wasn’t anticipating that. The Lloyds Banking Group (LSE:LLOY) share value closed 4.9% larger 20 February, after the financial institution launched its 2024 outcomes.

At one level, its inventory was up 7.6%, having set a brand new 52-week excessive of 67.6p.

And but the financial institution failed to fulfill analysts’ expectations on quite a few key measures. In these circumstances, I’d usually anticipate the group’s worth to go down. As a substitute, buyers collectively determined that its market-cap must be over £1.15bn larger.

Decrease-than-expected earnings

For instance, the consensus of analysts was for post-tax earnings of £4.64bn. The financial institution missed this by £161m (3.5%). Additionally, at 12.3%, its return on capital employed was 0.3 proportion factors decrease than forecast.

Nevertheless, my greatest shock is that buyers appeared to disregard the rise within the quantity put aside to cowl fines and compensation arising from the Monetary Conduct Authority’s (FCA) investigation into the alleged misselling of automotive finance.

Beforehand, the financial institution had estimated that it might need to pay £450m. This has now been elevated by an additional £700m, to £1.5bn. Nevertheless, it’s nonetheless decrease than the £4.2bn (or 6.9p a share) that one analyst reckons it’ll price.

As occasions have unfolded, we’ve seen how delicate the financial institution’s share value has been to numerous courtroom judgements, FCA bulletins and media experiences. With disappointing earnings and a rise within the motor finance provision, I used to be anticipating a big correction within the share value, particularly because it’s carried out so strongly in latest months.

Egg on my face

However I used to be unsuitable. Nevertheless, on nearer inspection, it’s simple to see why buyers reacted so positively. Regardless of the bottom fee being reduce, it managed to report a internet curiosity margin of two.95%, which was consistent with ‘professional’ predictions.

Additionally, the financial institution’s elevated its dividend. The payout for 2024 will now be 3.17p. This beat market expectations by 2.6%. Even with the post-results leap within the share value, the inventory’s yielding 4.8%. Additionally, it’s introduced one other £1.7bn of buybacks.

Nevertheless, I imagine future dividends and share buybacks may come underneath risk if the motor finance provision must be elevated additional. When there’s a must protect money, these are simple targets.

However I believe the Lloyds share value isn’t the cut price it as soon as was. It has a price-to-book (PTB) ratio of 0.88. On paper, this means the inventory’s low cost. Nevertheless, in accordance with McKinsey & Firm, the typical PTB ratio of 1,500 listed banks is 0.9, the bottom of all sectors.

And its shares now commerce on a a number of of 10.5 instances its 2024 earnings. With the entire FTSE 100’s banks now reporting their 2024 outcomes, it’s attainable to compile a league desk of price-to-earnings (P/E) ratios, and Lloyds is on the backside.

I imagine this displays the latest share value rally fairly than buyers score the financial institution extra extremely than the others. Lloyds is sort of completely reliant on the home economic system, and with the UK struggling to develop, I concern the financial institution’s future earnings might disappoint buyers. Additionally, I’ve no concept what the ultimate invoice is perhaps as soon as the FCA completes its investigation.

For these causes, I’m not going to speculate.