Lloyds Banking expected to increase focus on digital offering in its strategic review

By John Harrington / February 20, 2018 / www.proactiveinvestors.co.uk / Article Link

Analysts are not expecting any fireworks from the full-year numbers from Lloyds Bank on Wednesday, but the strategic review may be a different matter.

The bank, which finally returned to full public ownership last year, is expected to report steady rather than spectacular underlying income growth while loans to customers are tipped to be broadly flat for the year.

However, cost savings and an improved net interest margin should mean profit growth is a little more impressive, although further charges for payment protection insurance (PPI) mis-selling are also likely.

The consensus forecast for underlying profit before tax is ?7.1bn, while the dividend - Lloyds has been a favourite stock of income investors throughout most of its stock market existence - is expected to rise to 4p from 2.25p in 2016.

The real focus for investors is the strategy review accompanying results, with cost savings likely to remain a key focus, as will efforts to move more services online and increasingly offer a digital banking service.

'Help to Buy' has been a massive success - for the house sellers

To misquote Dire Straits, it has been a case of "money for nothing, and your bricks for free" for house-builders since the government's "Help to Buy" initiative was introduced.

As such, half-year results from Barratt Developments should be an upbeat affair, though much of the good news was released in the trading update on January 11.

The focus will, therefore, be on current trading.

"Given good demand and our healthy forward order book we continue to expect to deliver modest growth in wholly owned completions in FY18," the company said in January.

Total forward sales, including joint ventures, as at the end of 2017 were up 2.0% year-on-year, equating to 10,921 plots (2016: 10,520 plots).

"Barratt is our least preferred house-builder as its lower margins make it more exposed to downside risk, and we do not see much scope to improve margins," said Liberum in a note released after the January trading statement.

"Its relatively short land bank and high land creditors mean it has less potential to cut cash outflows in support of the dividend than the other returners. As we set out in a recent sector review, we expect continued resilience for the market for new houses, and we do not see clear or present dangers for the cycle; however, we believe that margin progress will become tougher in a slower market," Liberum said.

Looking for clues in the minutes to the meeting of the US rate setters 

Given the market's current obsession with inflation and interest rates, in a preview, economists at RBC Capital think the odds that the FOMC minutes are interpreted as reinforcing this narrative of a firming inflationary backdrop are high.

They said the tweaks to the Fed's press statement were significant enough that the minutes are likely to read hawkish overall, having finally acknowledged that inflation will "move up" this year.

The economists said this admission by the Fed is yet another step away from what has been an underlying dovish thread within the committee.

Significant announcements expected

Finals: Lloyds Banking Group PLC (LON:LLOY), Glencore PLC (LON:GLEN), Capital & Counties PLC (LON:CAPCC)

Interims: Barratt Developments PLC, Hotel Chocolat Group PLC (LON:HOTC), SkinBioTherapeutics PLC (LON:SBTX)

Trading update: FirstGroup PLC (LON:FGP)

Economic data: UK unemployment, average earnings; UK public sector finances; US existing home sales; US FOMC meeting minutes

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