There’s little doubt that Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) is bouncing back to earnings growth after a few years in the wilderness.
And the share price has been storming back, too, putting on 50% over the past 12 months to reach 84p.
Sadly, the sign of the black horse has been an indicator of wealth destruction over the past three years, with a massive £3.5bn pre-tax loss reported for 2011. But the year to December 2013 should set shareholders back on the road to profits.
Here’s what City analysts are currently forecasting:
| Dec | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2013 | 5.29p | n/a | 15.8 | 0p | n/a | 0% | n/a |
| 2014 | 7.04p | +33% | 11.8 | 1.9p | n/a | 2.3% | 3.7x |
| 2015 | 7.82p | +11% | 10.7 | 3.7p | +95% | 4.4% | 2.1x |
Full-year 2013 results should be with us tomorrow, 13 February, and they’re unlikely to be too far from those expectations.
Beating expectations
In an update on 3 February, issued ahead of the full figures, Lloyds told us that it expects to report an underlying profit of £6.2bn for the year, which is ahead of the analysts’ consensus and better than double 2012’s profit. We also heard that the bank “expects to report a small statutory profit before tax for the 2013 financial year“.
How that will translate into earnings per share we can only guess at the moment, but it should form the basis of decent future growth.
Future growth
For 2013, Lloyds did still have to squirrel away a fair-sized chunk of cash to cover the ongoing costs of past naughtiness — in Q4, the bank earmarked a further £1.8bn to cover the mis-selling of payment protection insurance as the numbers of successful claims have been higher than expected.
And £130m was allocated to cover further costs from the selling of inappropriate interest rate hedging products to smaller businesses.
How much will be set aside in future years remains to be seen, but it’s sure to be less than in 2013 — and it won’t be long before those costs are a thing of the past and all that cash can go towards Lloyds’ burgeoning bottom line.
Dividends
That bottom line, of course, means we’re set for a resumption of dividends. After discussions with the Prudential Regulatory Authority, Lloyds is planning to restart dividend payments in the second half of 2014 “at a modest level“, and a progressive policy should lead to a payout of “at least 50% of sustainable earnings“.
Some were expecting dividends to restart for 2013, but there’s no rush — and that earnings growth potential still makes Lloyds shares look like an attractive prospect to me, on a two-year-out P/E of under 11.