Lloyds Banking Group: How much growth to compound?

研报英文原文证据摘录

Lloyds Banking Group: How much growth to compound?

Executive Summary: 20% sustainable

ROTE plus compounding growth

Lloyds to provide new medium term targets and guidance at H126

Lloyds’ current strategy cycle runs from FY21-FY26. Management has committed to

providing new targets and guidance for the next strategy cycle at the H126 results

presentation, scheduled for 30th July.

We think consensus expectation of c.20% ROTE is a reasonable basis for the

medium term

Consensus is already forecasting c.20% ROTE for 2028. While we think it is entirely

possible that Lloyds can print a ROTE above 20% if the interest rate/ competitive

conditions are favourable, we do not think management would necessarily lean into this

angle at the CMD. At a c.20% sustainable ROTE, the growth compounding is arguably

more important than chasing any marginal increase in ROTE.

Importantly, it is also not the only bank that is achieving this level of ROTE – its closest

peer NatWest is also expected to generate a c.20% sustainable ROTE. We would

therefore expect competition to limit margin expansion.

In addition, we also think that management would be aware of the political risk of

focusing too much on returns in the current climate. Lloyds’ mission is ‘Helping Britain

Prosper’ – and it is likely easier to align the mission to its medium-term strategy by

focusing more on volume growth.

Growth focus: revenue and cost efficiency driving profit growth above GDP

We think the focus would be revenue growth and cost efficiency. Within revenue growth,

we think the focus would be on fee income growth. There would be mechanical NII

growth from the remaining structural hedge reinvestment, as well as balance sheet

growth in line with the market, but given its market share we think further gains would