How Will Lloyds Banking (LYG) Stock React To TSB Stake Sale Below Book Value?

NEW YORK (TheStreet) -- Lloyds Banking Group Plc (LYG) will reportedly launch the sale of at least 25% of its TSB business beginning next week via a stock market flotation with the pricing expected to be below book value, sources told Reuters.

The amount of stock sold is likely to be less than what some investors had anticipated, sources say, reflecting a cooling of investor interest in U.K. company flotations in recent weeks following a flurry of activity earlier in 2014, Reuters noted.

The bank's stock is flat in light trading.

Must Read: Warren Buffett's 25 Favorite Growth Stocks

 

The IPO, which will happen before the end of June, is expected to value TSB at less than its book value of 1.5 billion pounds, meaning Lloyds will make a loss on the sale, sources added.

TheStreet Ratings team rates LLOYDS BANKING GROUP PLC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate LLOYDS BANKING GROUP PLC (LYG) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, LYG's share price has jumped by 38.18%, exceeding the performance of the broader market during that same time frame. Although LYG had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • The gross profit margin for LLOYDS BANKING GROUP PLC is rather high; currently it is at 62.62%. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, LYG's net profit margin of 16.80% significantly trails the industry average.
  • LLOYDS BANKING GROUP PLC's earnings per share declined by 23.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LLOYDS BANKING GROUP PLC continued to lose money by earning -$0.08 versus -$0.13 in the prior year. This year, the market expects an improvement in earnings ($0.50 versus -$0.08).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Commercial Banks industry and the overall market, LLOYDS BANKING GROUP PLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Commercial Banks industry. The net income has decreased by 17.4% when compared to the same quarter one year ago, dropping from $2,316.93 million to $1,914.29 million.
  • You can view the full analysis from the report here: LYG Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

More from Markets

5 Cheap Stocks Primed for a Summer Rally

5 Cheap Stocks Primed for a Summer Rally

Whiskey Maker's Outlook Cut by Goldman Sachs Because of Tariffs

Whiskey Maker's Outlook Cut by Goldman Sachs Because of Tariffs

Dow Falls Sharply, Nasdaq Sinks as Wall Street Weighs Trump's New Trade Threats

Dow Falls Sharply, Nasdaq Sinks as Wall Street Weighs Trump's New Trade Threats

Bond Yields to Slide for Rest of Year Amid Trade Turmoil, Morgan Stanley Says

Bond Yields to Slide for Rest of Year Amid Trade Turmoil, Morgan Stanley Says

Boeing Slides as China Premier Li Says Willing to Continue Talks With Airbus

Boeing Slides as China Premier Li Says Willing to Continue Talks With Airbus