Lloyds Banking Group (LLOY)

Lloyds began the year on a strong note, increasing its market share of gross lending to 16% (15.5% a year before), cementing its status as the top UK mortgage lender. Even more importantly, it managed to reduce costs of mis-selling Payment Protection Insurance (PPI), a persistent problem with UK banking sector, with latest PPI provisions falling to £90M (from £350M a year before).

Pre-tax profit +23% YoY, net income +4% YoY, while return on tangible equity improved by 3.5% (to 12.3%). Net interest margin increased to 2.93% (from 2.8% a year ago). Lloyds also reported strong asset quality of its lending book and improved capital adequacy ratio of 14.4%. Full-year outlook was maintained and the bank confirmed it was on track to achieve FY 2.9% net interest margin target.

Initial share price movement after Lloyds announced Q1 results was negative, with shares falling to as low as 64.6p in mid-day trading on 25 April, reflecting persistent concerns over the needs to set aside more funds to pay for PPI mis-selling on top of the £18B the bank already paid out since 2011.

Patience is a virtue

Note that while Lloyds share price briefly moved off-side of this Long position on 2 May, it is possible to protect the investment with a stop order directly on the trading platform. While the initial market reaction to negative quarterly earnings can result in volatility, a patient investor can take advantage of the rebound as long as they are confident in the underlying value of the stock.Investors can take advantage of a post-results share price movement, while at the same time managing their exposure, by using financial instruments called Contracts for Difference (CFDs).

With the shares falling 1.7% on the day of the results, astute investors could have waited out the immediate sell-off and opened a £5,000 Long position at 64.34p using a £1,000 deposit, then holding it just 2 weeks to close the trade at 66.93. This would have allowed investors to make around £200 in profit (before commission and overnight financing), which represents a 20% return on initial investment. Had the shares moved in the opposite direction, they would have incurred loss.

Note that while Lloyds share price briefly moved off-side of this Long position on 2 May, it is possible to protect the investment with a stop order directly on the trading platform. While the initial market reaction to negative quarterly earnings can result in volatility, a patient investor can take advantage of the rebound as long as they are confident in the underlying value of the stock.

Source: CMC Markets, 19 July 2018

Source: CMC Markets, 19 July 2018
Example of a notional Lloyds deal ticket.