Trade idea of the day: What to watch for in Lloyds earnings

Lloyds is due to reports its earnings and a strategy update and 7am on Wednesday. These will be the first set of results since the UK government sold the remainder of its stake in May last year. The key points to look out for will be news on returns in the form of a special dividend or share buyback and strategy at the bank, particularly with respect to technology

Lloyds is due to reports its earnings and a strategy update and 7am on Wednesday. These will be the first set of results since the UK government sold the remainder of its stake in May last year. The key points to look out for will be news on returns in the form of a special dividend or share buyback and strategy at the bank, particularly with respect to technology.  

The figures: 

Lloyds are expected to report income of £18.5 billion for 2017. £1 billion more than a year earlier. Profit from the bank is expected to be £5.89 billion, up from £4.24 billion in 2016. Key points: 

SHARE BUYBACK – Lloyds is expected to announce a share buyback in the region of £850 - £900 million in an attempt to show investors that the bank can reward them with a steady return. Lloyds used to be the go to dividend machine prior to the financial crisis and now it appears to be showing potential of returning itself to its former glory. 

Additionally, the bank looks to improve investor confidence over Lloyds capital requirements, in light of higher demands from regulators. PPI – With the August 2019 deadline finally drawing closer regulators are attempting to raise awareness. 

This is expected to result in a spike in claims for the mis selling of the insurance. Lloyds could increase provisions for PPI mis selling by a further £1 billion. 

STRATEGY – Lloyds are expected to announce a three-year plan focused on digital investment and developing its insurance and wealth businesses. Growth is a problem for the bank and they face rising competition amid rapid technological changes, which so far they haven’t been able to match. 

A digital investment in the region of £3 billion could address this head on. Finally, further cost cutting by way of reducing the bank’s branch network and head count is also on the cards. 

Any signs of not living up to expectations over the above, could weigh on sentiment towards the bank. Lloyds is currently trading over 5% off its recent high reached in January, and down 0,.2% on the day at 67.8, with a potential long term target seen at 85p.

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