Lloyds divides investors with third-quarter update

Investors were not sure what to make of Lloyds Banking Group's third-quarter interim management statement, as both bulls and bears found fodder to support their assessment of the bank.

Shares in the part state-owned bank were down close to 2% in morning trading to 78p even as underlying profit increased by 136% to £4.4 billion in the first nine months of the year.

David Madden, market analyst at IG, said: "Lloyds is still being haunted by the PPI scandal. The stock is trading 5p higher than the government's 73p breakeven price, but traders are still hesitant to buy into the bank as it has put another £750 million aside for PP compensation."

Lloyds said underlying profit in the third quarter was £1.5 million, up 7% on the second quarter and 83% on the third quarter of 2012. Costs were also reduced, down by 6% to £7.1 billion, with the impairment charge down 44% to £2.4 billion.

But some were discouraged by statutory pre-tax losses of £440 million, up from £151 million in losses in the three months to the end of September 2012.

Investor view

Over on the Interactive Investor discussion boards, users were frustrated with the focus on PPI redress.

'DanielWayne' said: "The City and media are taking the Mick. Over-hype on the PPI provision, they do not like good news."

'Schwee' thought there was even worse to come, however: "Cutting through the accounting nonsenses Lloyds is still loss-making. Rules are that losses need only be recognised when they crystallise. So who knows what is still lurking in the undergrowth."

Meanwhile, 'itsagas' was more focused on future dividend potential, highlighting chief executive Antonio Horta-Osorio's promise to be a high-dividend-paying stock.

Analyst view

On the analyst side of the piece, Jonathan Jackson, head of equities at stockbroker Killik & Co, said: "Lloyds is continuing to make good progress on its restructuring, reducing the balance sheet size and risk, cutting costs and bringing impairments under control. Underlying performance has begun to improve and once economic conditions begin to improve Lloyds should move towards a more normalised earnings level.

"After a strong run this year, Lloyds is currently trading at 11.7 times 2014 consensus earnings and 1.5 times tangible net asset value. "At current valuations we would consider the stock to be fairly valued, with further upside being driven by an improved UK economy and the resumption of dividends."

Jackson rates Lloyds as a 'buy' with a target price of 80p.