So we now have the incredible situation of 27bn shares in lloyds in issue! Lloyds have sacrificed shareholder value to aquire HBOS because it gives them huge market share only to find that EU competition regulation mean they might not be able to exploit this monopoly.
Blank has gone (or is going) which I suppose is a good thing but no doubt he'll get a big payoff for bringing Lloyds down.
Hemscott has analyts consensus of a 24p loss per share for 2009 and for 2010 a loss of 12p per share.
Book value for 2009 is I think somewhere around 50p/share falling in 2010 further.
I think the only good news for Lloyds shareholders is that perhaps they might get back to 2007 earnings levels by 2011 or beyond where they made approxy £4bn. With 27bn shares in issue (and perhaps more by then) this would be an EPS of 14p. If we use a p/e of say 6 this might imply a 2011 share price of 84p.
To get back to around 120p a share (about my breakeven point) assuming a p/e of 6 we need either £5.4Bn of earnings after tax (but big tax credit to use up) or earnings of £4Bn and a p/e of 8.
So in short I don't see an improvement on the share price until we get to about 2011 and even then this is all dependent on Lloyds returning to 2007 levels of profit.
Thoughts?
Log
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Just to follow up on this post. Switching to the Lloyds prefs mikght seems like a wise move at this point or at least after the open offer is taken up. LLPF currently yeild 18.5% priced at 330 which I'm told is the current offer. At this kind of yeild two years worth of coupons will see a 40% return on investment. A 40% uplift in the price of the common on todays close at 70p would imply a 2011 share price of 98p.
So the Prefs (bird in the hand) or a speculative price of between 84-120p I guess is the choice.
Obviously, the prefs are not guarenteed to pay a coupon but if they failed to then the common would be much worse off too.
Log
Hi Log,
I don't think you should be looking just at the LLOY profit from 2007, given that they now have HBOS too. HBOS will of course be a drag in the near term (probably for at least another year as writedowns seem likely to continue) but after that there is the potential (IMO - and if management have done their jobs right) for earnings to grow quite powerfully.
Nevertheless, I don't think there is a compelling case for being invested in the near term. It was a decent punt sub-50p and may well be again, though I'd doubt it would get sold off that hard. I haven't looked at the exact story lately though (eg the RNS today) ....I'm still of the view that banks will disappoint on earnings in the remainder of 2009 and have got too far ahead of themselves.
cheers
ee
Hi ee,
My comparison with 2007 was really based on the fact that yes HBOS will contribute if it can be cleaned up but on the downside things are a lot tougher economically so perhaps one cancells the other out. I suppose what interests me is the comparison between the ords and the prefs more and to do that comparison you have to put your finger in the air to decide what earnings might be.
I concur I think banks have run up a lot already especially Barclays - there are better opps out there probably but I've already got a lot of money in Soco and it has gone nowhere in particular in the last year or so either!
Log