Lloyds Banking Group Shares Downgraded by UBS Despite Strong Second-Quarter Results

Strategic Insights -

UBS analysts have downgraded Lloyds Banking Group PLC (LSE:LLOY) shares after the second-quarter results showed that the bank's profit before tax was 6% above consensus forecasts due to low bad debts. However, pre-provision profit was 8% below market expectations due to 40% higher car depreciation. The analysts still expect Lloyds to grow UK domestic net interest income (NII) despite falling interest rates and believe the bank's NII growth prospects are attractive compared to the pan-European sector.

Key Takeaways:

  • UBS analysts downgraded Lloyds Banking Group PLC shares to "neutral" due to the premium share price.
  • The bank's pre-provision profit was 8% below market expectations due to 40% higher car depreciation.
  • UBS analysts expect Lloyds to grow UK domestic net interest income (NII) despite falling interest rates.
  • The analysts believe Lloyds NII growth prospects are attractive compared to the pan-European sector.
  • The bank's second-quarter profit before tax was 6% above consensus forecasts.
  • The stock is trading at a 12% P/E premium to the sector after the post-results rally.
  • UBS analysts suggest UK banks should deliver circa 5% per annum NII growth even as the economy benefits from falling policy rates.

Statistics:

  • 40% higher car depreciation led to 8% below market expectations in pre-provision profit.
  • 6% above consensus forecasts for second-quarter profit before tax.
  • 12% P/E premium to the sector after the post-results rally.
  • Circa 5% per annum NII growth expected for UK banks.
  • 2026 estimates for Lloyds are now in line with City consensus.

Sources:

  • [Lloyds Banking Group investor relations](https://www.lloydsbankinggroup.com/investors/)
  • [UBS analyst report](https://www.ubs.com/global/en/research/markets.html)