High street bank Lloyds (LLOY) has impressed the market after beating profit expectations and hiking its dividend on the back of strong half year results.
Higher income and lower costs helped underlying profit rise 7% to £4.2bn in the six months to 30 June, comfortably beating consensus of approximately £4bn. The dividend has also been hiked 7% to 1.07p.
Investors will also be relieved to see that Lloyds is becoming more resilient as the UK’s exit from the EU approaches with the common equity tier 1 ratio rising from 13.9% to 15.1%.
Lloyds’ performance is impressive as the bank has not been held back by an additional £550m set aside for complaints relating to alleged mis-selling of private protection insurance.
AJ Bell investment director Russ Mould says the strong results were slightly marred by the extra compensation costs, but notes this issue should be settled soon as the August 2019 deadline for claims approaches.
‘A more pressing risk going forward is the fall-out from Brexit given the company’s big exposure to the UK economy and specifically consumer debt,’ comments Mould.
Shore Capital analyst Gary Greenwood believes shares in Lloyd’s have underperformed on Brexit concerns although he flags that the outlook for the UK economy on which he bases his forecasts remains ‘benign.’
He says Lloyds has proven to be relatively adept at protecting its net interest margin under pressure and benefits from good underlying capital generation, which could support payouts to shareholders.
