Executives at Lloyds are asking too much of investors. Following yesterday's surprise pre-close trading update from the lender, the possibility that it might announce a dividend payout alongside its full year results on February 13th has vanished into thin air, at least until six months from now.
Indeed, at £6.2bn underlying earnings are supportive of dividend payments and the core business is making progress. However, analysts say that is already baked into the share price. Furthermore, shareholders at Lloyds are heaviliy exposed to UK house prices. Mortgages make up the bulk of the £495bn in loans and advances that in turn back up its £870bn in total assets. Shareholders' equity, on the other hand, is equivalent to only 4.7% of that amount.
Compounding the bank´s problems is the state. It wants to get out, and probably before the next elections if at all possible. The rub is that such a timetable would not give Lloyd´s sufficient time to provide a retail offering. Lastly, lets not forget that the bank has consistently underestimated its PPI mis-selling liability. On 14 times next year´s estimated earnings the shares
look expensive. 'Sell', says The Daily Telegraph´s Questor team.
The relative merits of a company's management disposing of business units and handing the resulting cash proceeds back to shareholders have always been questionable, but sometimes it does make sense. On Monday Rexam joined the likes of Melrose and IMI in announcing just such an operation. The price obtained for its pharmaceuticals devices and prescription retail packaging businesses - at $805m - was on the low end of City expectations. However, just like those other two companies, Rexam has identified a core business elsewhere. The transaction is a part of the company´s efforts to become a pure maker of drinsk cans. It will be a duller outfit, but much more focused. "The shares sell on about 12 times earnings. Given the new focus, they remain a strong, solid core holding," says The Times´ Tempus.
With the disposal of APPH, a maker of landing gears and hydraulic systems, for 18 times´ annual operating profits, BBA Aviation has almost entirely completed its transformation from a manufacturer of aircraft components and into an aviation services firm. The company´s underlying logic is that it makes more sense to build-up its services side - such as aircraft de-icing and repair and maintenance - around the globe, given the higher margins to be had in services. The company is planning to hand most of the proceeds of the sale back to its owners, its shareholders, most likely through a share buyback.
It is also likely to carry out further small acquistions, but in a disciplined manner, as the management team´s track record shows. The shares are a 'play' on the cyclical recovery of the aviation market, with recent figures Stateside showing that this is gathering pace. The stock sells on almost 16 times earnings "which looks up with events, though that cash return is attractive enough", Tempus says.
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