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Lloyds boosts FTSE as profits hit 10-year high

Lloyds boosts FTSE as profits hit 10-year high

by Daniel Grote Feb 22, 2017 at 17:00

Lloyds (LLOY) was an early leader on the FTSE 100 after unveiling its highest profits since the financial crisis and consolidating its income credentials with a raised dividend.

Shares in the bank jumped 4.4% to 69.1p on news of £4.2 billion profits for 2016, more than double 2015's level and the most in 10 years.

That and a second reading of UK's gross domestic product showing the economy grew by 0.7% in the fourth quarter, up from the 0.6% initially thought, helped push the FTSE 100 up 0.4%, or 29 points, to 7,303.

However, Unilever (ULVR) overtook Lloyds as the biggest FTSE riser with a statement in the afternoon that it was looking at all its growth options following its rejection of a $143 billion bid approach from Kraft Heinz. 

Lloyds' dividend cheer

Lloyds' profits were boosted by lower provisions to compensate customers mis-sold payment protection insurance (PPI). Lloyds set aside £1 billion in 2016 in what the bank hopes is its final PPI provision.

The bank added to investor cheer by unveiling a 1.7p final dividend and 0.5p special payout, taking total dividends to 3.05p, 10.9% up on 2015's 2.75p payout, which also included a half-a-penny special.

That has solidified Lloyds' income credentials, after the bank resumed dividend payments with a token 0.75p payout, for 2014 its first since the financial crisis.

Chief executive Antonio Horta-Osorio said the bank, which has an almost exclusive domestic focus, was boosted by the strong performance of the UK economy following the Brexit vote.

'Our performance is inextricably linked to the health of the UK economy which has been more resilient than the market expected post referendum,' he said.

Laith Khalaf, senior analyst at Hargreaves Lansdown, hailed the surge in the bank's profits. 'Lloyds is returning to full health after being knocked for six by the financial crisis, since which time the bank has become safer, more profitable, and a good source of dividends for shareholders,' he said.

Michael Hewson, chief market analyst at CMC Markets UK, said the results showed the bank was turning a corner, as PPI costs begin to wane.

'There is optimism that shareholders can now focus on the future as opposed to dwelling on the past,' he said. 'All that is needed now is for the UK government to offload the remainder of its 5% stake and the turnaround story would be complete, which makes it all the more surprising the shares still remain below their pre-Brexit peaks of 72p.'

William Howlett, bank analyst at Quilter Cheviot, said: 'We believe Lloyds offers a compelling capital return story reflecting the strength of its balance sheet and underlying capital generation, an as we near the end on PPI charges.

Gary Greenwood, analyst at Shore Capital, said he expected to hike his target price on the shares to 75p, from 65p, following the results.

'We therefore remain positive on Lloyds' shares, viewing them as being attractively valued compared to its large quoted banking peers and also continue to view the name as a core holding for income funds seeking exposure to the banking sector,' he said.

After an early 2% spike, Barratt Developments (BDEV) closed 2p or 0.4% up at 516.8p after the house builder reported a 9% jump in half-year profits.

Miners down

Miners fell to the bottom of the index, with Anglo American (AAL) dropping 3% to £13.07 and BHP Billiton (BLT) down 2.7% at £13.72.

On the FTSE 250, Serco (SRP) plunged nearly 20% at 125.25p after the outsourcing group reported a 14% drop in 2016 profits.

Indivior (INDV) slid 6.6% to 325.6p after the pharmaceutical group reported a heavy drop in pre-tax profits, down to $98 million (£79 million) in 2016 from $285 million the year before, after booking a $220 million charge related to US litigation.

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