Lloyds Banking Group plc, together with its subsidiaries, provides a range of banking and financial services in the United Kingdom and internationally. It operates through three segments: Retail; Commercial Banking; and Insurance and Wealth. The Retail segment offers a range of financial service products, including current accounts, savings accounts, mortgages, motor finance, unsecured loans, leasing solutions, credit cards, and other financial services to personal and small business customers. The Commercial Banking segment provides lending, transactional banking, working capital management, risk management, and debt capital market services to small and medium-sized entities, corporates, and financial institutions. The Insurance and Wealth segment offers life, home, and car insurance products, and pension, investment, and wealth management products and services. It also provides digital and mobile banking, and telephone services, as well as advisory services for savings, investments, and planning for retirement. The company offers its products and services under the Lloyds Bank, Halifax, Bank of Scotland, Scottish Widows, MBNA, Schroders Personal Wealth, Black Horse, Lex Autolease, Birmingham Midshires, LDC, IWeb, and Agricultural Mortgage Corporation brands. Lloyds Banking Group plc was founded in 1695 and is headquartered in London, the United Kingdom.

The net interest income of Lloyds has been rather disappointing in the last 10 years: as can be seen from 2012 the growth has been very low, and since

2014 there has even been a deterioration. Although interest costs have been decreasing, this has not been enough to increase the net interest income as interest income has also been decreasing.

Looking at the company’s other forms of revenue as well, the situation does not improve at all.

Income from trading activities is very volatile, sometimes negative as in 2018.

As for other activities not related to income interests, again there are too many uncertainties: sometimes they have a negative impact, sometimes a positive one. Overall, the ability of this company to generate income I consider rather questionable since the income interests have been down since 2012 and the other operating activities generate results that are too swinging.

Revenues are expected to increase and in 2025 they should reach the results of 2019. It must be said, however, that the analysts’ estimates could be wrong, as the company has repeatedly proven to be unpredictable from a revenue perspective, especially concerns trading-related activities.

Even if the estimates were to be met, this is a very low growth rate from 2015 to 2026 (0.8% CAGR).

2012201320142015201620172018201920202021
Nonperforming Loans / Total Loans % 8.6%6.3%2.9%2.0%1.8%1.1%1.3%1.3%1.4%1.4%
Nonperforming Loans / Total Assets % 5.0%3.8%1.7%1.2%1.0%0.6%0.7%0.7%0.7%0.7%
Nonperforming Assets / Total Assets % 5.1%3.9%1.8%1.2%1.1%0.6%0.7%0.7%0.7%0.7%
Nonperforming Assets / Equity %      110.9%84.3%30.3%20.8%18.0%10.7%11.4%12.6%13.1%12.1%

From a financial point of view, although income from interest on loans has decreased year on year since 2012, it must be said that the quality of the loans granted has improved. The current results are quite good and better than in the past: this shows that the company has probably granted loans only to worthy customers, reducing the risk of not seeing their loans paid back.

As for outstanding shares, Lloyds has diluted its shareholders slightly since 2019, but not excessively. Therefore, we can consider the stocks in stable circulations over the past 3 years.

Using an income model, Lloyds’ fair value is £ 0.50 per share based on these assumptions entered. As the shares are currently trading for £ 0.45 per share, the company is undervalued. However, if I had entered a safety margin, even just 20%, this company would not be at a discount, so personally I do not yet consider it valid for purchase.

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