Should You Buy Lloyds Banking Group Today?


LONDON -- Shares across the banking sector have leapt in start-of-week trading following news of an 11th-hour bailout agreement for Cyprus sealed last night.

High-street bank Lloyds has helped lead the relief rally, even though it is less exposed to the beleaguered eurozone that many of its counterparts, and I believe that the firm has much more in reserve as group restructuring rolls on.

Group transformation to keep on delivering
One of Lloyds's key strengths is its retail-centric philosophy, an area less susceptible to operational volatility, and it holds around a third of the country's mortgages and around 25% of all savings.

And the company plans to continue making significant investment in its U.K. retail and commercial banking arms to underpin future growth -- indeed, development of its digital banking platforms saw a 15% rise in active online customers to 9.5 million last year, while it is also heavily investing in branch refurbishments.

Lloyds has undergone an intensive cost-cutting and disposal programme to heal its balance sheet and bolster capital ratios, with non-core assets slashed to 98.4 billion pounds by the end of last year compared with 140.7 billion pounds as of December 2011. A further 20 billion pounds of reductions are planned for 2013, and offloaded a 20% stake in St James's Place in recent weeks, a move that realised a profit of around 400 million pounds.

Earnings turnaround expected in 2013
Lloyds saw losses per share narrow in 2012, announced at its full-year results earlier this month, to 2 pence from 4.1 pence during the previous 12-month period. And City analysts expect earnings to bounce back into positive territory from this year onwards -- earnings per share is expected to come in at 4.4 pence in 2013 before marching to 5.6 pence next year.

The group currently changes hands on a P/E ratio of 11 and 8.6 for 2013 and 2014 respectively, representing decent value when compared with a forward earnings multiple of 13.1 for the wider banking sector.

Lloyds has not been in a position to offer dividends to stakeholders in recent years owing to the firm's battered balance sheet and uncertainty surrounding regulatory capital requirements.

However, the board says that it is committed to returning cash to shareholders at the earliest opportunity, a position that analysts expect to come to fruition during the current year. Forecasters have pencilled in a dividend per share of 0.2 pence and 1.1 pence for 2013 and 2014, carrying yields of 0.4% and 2.2% respectively.

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