In the midst of an economic crisis, Lloyds Banking Group (LSE: LLOY) has just upped its full-year guidance for 2022. And the Lloyds share price gained 4% in early trading, in response to the bank’s first-half results statement.
Chief executive Charlie Nunn put the guidance upgrade down to the bank’s strong financial performance and “the resilience of our business model and customer relationships“.
Lloyds now reckons net interest margin, asset quality ratio, return on tangible equity, and capital generation will all be better than previously expected. Other outlook measures remain unchanged.
So is this the results update that will reverse the Lloyds share price trend and sent it back up again? Well, it might not be time for champagne and roses just yet.
Profit
Statutory profit after tax for the six months came in at £2.8bn. And that’s a fair way down from the £3.9bn recorded in the same period last year.
Still, the first half of 2021 did bring an impairment release which was not repeated this year. That came from cash set aside to cover potential pandemic damage, which turned out to be more than needed. There was a deferred tax credit in 2021 too, boosting that year’s H1 figures.
Lloyds reckons its underlying H1 profit, before impairment, is 34% ahead of last year’s. It puts this down to strong net income growth. And first-half profit after tax was 40% upon the second half of 2021.
While the bank says its asset quality remains strong, it has recorded an underlying impairment of £0.4bn. That, in part, is to reflect the “updated economic outlook including inflationary pressures“.
Dividend
Reported earnings per share came in at 3.7p, down from 5.1p in the first half last year. It is up, though, from the 2.4p earned in the second half of 2021.
But what about the big thing that all Lloyds shareholders must surely have their minds keenly focused on? The bank lifted its interim dividend to 0.8p, from the 0.67p paid last year.
Lloyds didn’t say much else about the dividend, other than that it’s “in line with our progressive and sustainable ordinary dividend policy“.
But that’s a 20% hike from last year. And a similar increase in the total dividend would give us 2.4p per share, for a 5.3% yield on the current share price.
I’m holding
Lloyds also spoke of its 2022 share buyback programme of up to £2bn, saying it had completed £1.3bn of that by 30 June. Lloyds clearly thinks that its shares are worth buying on a forecast price-to-earnings (P/E) ratio of under seven. I do too.
Looking at Lloyds’ first-half performance in isolation, I’d never guess it was against such an apparently dire economic background. It just looks like a bank doing what banks do, and doing it pretty well.
But the economic outlook does carry considerable risk for the financial sector. And things could easily take a turn for the worse in the second half. Still, Lloyds remains a hold for me, and maybe a further buy when I’ve built up some more investment cash.