What made Lloyds (LON: LLOY) raise its full-year targets?

Summary 

  • Banking major announced its H1 2021 statutory profit before tax stood at £3.905 billion, reversing from a loss before tax in H1 2020.
  • The bank also announced its plans to acquire of retirement investment platform Embark Group for £390 million.

UK-based banking major Lloyds Banking Group (LON: LLOY) announced its H1 2021 results on Thursday, reporting the resumption of its first interim dividend after the Bank of England lifted its cap on dividend payouts. The bank has raised its targets for the full year, supported by a strong bounce back in economic growth. Now the bank expects to report 10 per cent growth in the tangible equity for the year as compared to 8.5-10 guided previously. Similarly, the NIM (Net Interest Margin) for the year are now expected to be 2.5 per cent, up by 0.05 per cent from its previous target of 2.45 per cent.

The group also announced the acquisition of the UK based retirement investment platform Embark Group.

Lloyds (LON: LLOY) share price performance

Lloyds Banking Group’s shares were trading at GBX 46.12, down by 0.18 per cent as of 30 July at 8:09 AM GMT+1. Meanwhile, the FTSE 100 index, which it is a part of, was also trading in red at 7,009.33, down by 0.98 per cent.

(Image Source: Refinitiv)

The group’s market cap was at £32.788 billion, and its one-year returns were at 62.88 per cent as of 30 July.

Lloyds Bank’s H1 2021 results

The bank announced its H1 2021 statutory profit before tax stood at £3.905 billion, reversing from a loss before tax of £602 million in H1 2020. The growth was attributed to strong momentum in the group’s business and a net impairment credit.

The net impairment credit in H1 2021 was at £656 million, which also included a credit of £333 million in Q2 2021. It is a reversal from a net charge of £3.818 billion in H1 2020.

The credit was due to the release of £837 million in expected credit loss allowances by the bank as the UK’s macroeconomic scenario improved from the pandemic related uncertainty. The group also noted a strong asset quality and credit performance, which also helped with impairment credit.

Also Read: Lloyds, NatWest and Barclays in focus as BoE scraps dividends pay out restrictions on banks

 

Resumption of dividends

Lloyds announced an interim dividend of 0.67 pence per share for H1 2021, compared to dividends of 0.57 pence per share in H1 2020. The bank also said it would be reintroducing a progressive and sustainable ordinary dividend policy.

The move comes after the UK’s central bank announced the relaxation of its ban on dividend payments on 13 July as economic uncertainty has reduced since December 2020.

The group’s common equity tier 1 (CET1) ratio stands at 16.7 per cent even after dividend accrual, indicating a strong capital position.

Acquisition

The banking group announced it intends to acquire investment platform Embark Group for up to £390 million. Deal completion is tentatively expected to be made in Q4 2021.

The acquisition is expected to address Lloyds’ attractive mass market and self-directed wealth segment and revamp its pensions and retirements services.

The bank stated the deal would impact its CET1 ratio by 30 basis points and that its return on invested capital will be at the 14-15 per cent range in the medium term. The transaction will be done on a cash funded basis due to the bank’s strong capital position.

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