Lloyds Q3 preview: Where next for the Lloyds share price?

When will Lloyds release Q3 earnings?

Lloyds Banking Group will release third quarter earnings on the morning of Thursday October 28.

Lloyds Q3 earnings preview: what to expect from the results

Lloyds, often used as a bellwether for the UK economy as the country’s biggest lender, returned to profit in the first half of 2021 as its financial performance benefited from the improving economic outlook as the UK recovers from the pandemic. Customer spending and card transactions rebounded as restrictions eased and commercial banking fees also improved as businesses look to build back better as they rebound from a tough 18 months. The release of credit reserves put aside to cover potentially bad loans during the pandemic also helped prop-up earnings.

Lloyds posted a rosier outlook when it posted interim results, stating its net interest margin would improve to around 250 basis points from its original target of 245bps and that mortgage growth was increasing faster than expected, countering an extra £100 million worth of costs it expects to book this year. Costs will remain a key focus in the third quarter, with Lloyds having been applauded so far for managing to keep them largely under control relative to some of its peers.

It also said it would report return on tangible equity of around 10% this year, up from its previous target of 8.5% to 10%.

Analysts are expecting net interest income to rise to £2.75 billion in the third quarter from £2.62 billion the year before and for reported pretax profit to edge up to £1.35 billion from £1.03 billion.

Importantly, Lloyds does not break out numbers for the third quarter and instead reports results for the nine-month period covering the first three quarters. Combining its results from the first half with the consensus expectations for the third quarter, analysts forecast net interest income of £8.17 billion and a pretax profit of £5.25 billion in the first nine months of the year. That would compare to net interest income of £8.32 billion and a profit of £620 million in the first nine months of 2020.

Earnings should benefit from the release of further provisions for bad debt considering the UK economy remains on the path to recovery, although analysts are expecting this to be around £260 million in the third quarter compared to the £677 million released in the first half. Lloyds chief financial officer said in the last update that the bank was seeing ‘very strong underlying performance’ in terms of loan losses and that it saw no signs that would change going forward.

Analysts are expecting Lloyds to post a CET 1 ratio – which measures a bank’s solvency – of between 16.2% and 16.3% at the end of September, up from 16.1% in the first half, which in turn improved from 15.5% the year before.

The outlook will be crucial in deciding how markets respond this week. Lloyds is well positioned to benefit from the anticipated rise in interest rates over the coming quarters as this will boost the interest it earns on loans and mortgages – which are its bread and butter. However, there are some concerns that the mortgage market could slow down as pricing competition intensifies, while loan demand remains questionable given the situation with employment and the savings built up by customers. Notably, the cheapest mortgage deals on the market have already disappeared in recent months in anticipation of higher rates. Investors will also be keen to hear how consumer and business activity is faring as the economy recovers, with markets wary that the outlook remains uncertain thanks to the pandemic, changes in interest rates, inflation and other major global issues like the supply crunch.

Elsewhere, investors will also be looking out for any updates on potential new catalysts for the bank, such as its push into insurance and wealth management following its acquisition of Embark Group and plans to become a sizeable buy-to-let landlord in the UK.

It is also worth touching upon shareholder returns. Lloyds declared a 0.67p dividend for the first half but markets were left slightly disappointed by the lack of a new buyback programme. Lloyds tends to declare dividends semi-annually, so don’t expect news in this quarterly update. However, there may be commentary on its ability to return cash to shareholders as it heads into the final quarter. The current consensus suggests Lloyds will pay a total dividend of 2.0p for 2021, signalling a large uplift to the second-half payout compared to the first.

Lloyds shares have risen over 40% since the start of 2021 but remain over 13% below their pre-pandemic levels. Brokers remain bullish on the bank and have a Buy rating on the stock with an average target price of 54.68p, implying there is over 12% potential upside from the current share price.

Where next for the Lloyds share price?

The Lloyds share price is extending its rebound off the 200 sma in mid-September. Lloyds trades within its multi-month ascending channel. It ran into resistance around 49.5p and has since corrected lower. 

The RSI supports further upside. The share price trades at the lower end of the ascending channel. Buyers will be looking for a move above 49.5p in order to target 50.5p the post pandemic high.  

Meanwhile support can be seen at 47.5p the lower band of the rising channel and last week’s low. A move below this level could negate the near term up trend and expose the 50 sma at 45.4p 

How to trade Lloyds shares

You can trade Lloyds shares with City Index in just four easy steps:

1. Open a City Index account, or log-in if you’re already a customer.
2. Search for ‘Lloyds’ in our award-winning platform
3. Choose your position and size, and your stop and limit levels
4. Place the trade