ii view: Lloyds Bank's new strategic goals

A focus on digital channels and an estimated future dividend yield of over 5%. Buy, sell or hold?

Full-year results to 31 December 2021

• Pre-tax profit of £6.9 billion, up from £1.2 billion in 2020
• Cost/income ratio up to 56.7% from 55.3% 
• Final dividend payment of 1.33p per share
• Total dividend for 2021 of 2p per share (2020: 0.57p per share)
• Share buyback programme of up to £2 billion
• Capital cushion of 16.3%, improved from 16.2% 

Chief executive Charlie Nunn said:

"2021 has been a year of solid financial performance with successful strategic execution, ongoing investment and continued franchise growth. 

"I am confident that the Group's purpose, customer focus, unique business model and significant competitive strengths, embodied in our ambitious strategy will ensure the Group is able to deliver higher, more sustainable long-term returns and capital generation for our shareholders, whilst meeting the needs of broader stakeholders."

ii round-up:

Founded in 1765, Lloyds Banking Group (LSE:LLOY) is today home to household brand names including Lloyds Bank itself, Halifax, Bank of Scotland, Scottish Widows and Birmingham Midshires.  

It operates through the three core divisions of Retail, Commercial Banking and Insurance and Wealth.

For a round-up of these latest results, please click here.

ii view:

Having transformed since the financial crisis of 2008, Lloyds Banking Group is now largely dependent on the UK economy. Personal and business banking, along with life and non-life insurance activities, now provide its core activities. Its controversial acquisition of Halifax bank during the financial crisis added significantly to its mortgage loans, a product arena which it has extended subsequently. 

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Under relatively new chief executive Charlie Nunn, Lloyds detailed its new strategic pushes. These include a focus on digital channels, supporting the transition to a low carbon economy, deepening its consumer relationships, and broadening its intermediary propositions in product areas such as motor finance and home insurance. Investment of £3 billion will be made over the next three years, with a total of £4 billion planned over five years.

For investors, developments in Ukraine can now be added to management’s cautionary comments in relation to new virus variants and the impact of inflation on the economy and households. Despite the bank’s own focus, cost pressures going forward will need to be battled, with its cost income ratio, if only marginally, up over this latest year to 56.7% from 2020’s 55.3%.  

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On the upside, its new strategy now underpins a series of encouraging 2024 to 2026 targets including growing revenues by £1.5 billion by 2026. A robust balance sheet or capital cushion (CET1) of 16.3% is comfortably above its target of 12.5%, enabling it to launch a new share buyback programme of up to £2 billion, while the shares now sit on an estimated future yield of over 5%. For now, and with the consensus analyst estimate of fair value sat at 60p per share, room for longer term optimism persists. 

Positives

• Attractive dividend (not guaranteed) 
• Improved capital cushion

Negatives

• Highly uncertain economic outlook
• Lacks the business diversity of some other banks

The average rating of stock market analysts:

Strong buy