Canaccord Genuity has retained its 'hold' rating and 35p target price for UK banking group Lloyds after a mixed set of full-year results on Friday morning.

Underlying (core) profit before tax came in at £2.61bn for 2012, well ahead of Canaccord's £2.31bn estimate.

While income and costs were bang in line with expectations, the broker said that 'beat' came from lower impairment charges (£5.69bn compared with the £6.23bn forecast).

However, the headline loss was much worse than the broker predicted at £1.34bn, compared with its £65m profit forecast, owing mainly to a £1.5bn charge for Payment Protection Insurance (PPI) in the fourth quarter alone.

"The statutory loss would have been materially worse had it not been for £1.887bn of core asset sale gains that were booked into Q412," Canaccord said.

The broker said that the key question at Lloyds is whiter the market believes it can grow the loan book.

"The core retail book (mortgages) declined by £6.4bn (-3.7% anualised) in H212 but management is still holding its view that core assets will be growing again by H212. Given that LLOY is c25% UK mortgage market share this must be premised upon market growth which, in turn, must be premised to some degree on rising house prices."

As for the stock's valuation, Canaccord said that unless the regulator allows an earlier resumption of ordinary dividend - something that is likely "some way off" - "we do not see much valuation support/upside at current share price levels".

Shares were down 5.43% at 51.51p by 10:38 on Friday.

BC

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