Lloyds 2022 earnings preview: Where next for the LLOY share price?

When will Lloyds release 2022 earnings?

Lloyds Banking Group will release 2022 full year results on the morning of Wednesday February 22. A conference call will be held with management on the same day at 0930 GMT.

Lloyds 2022 earnings consensus

Lloyds Banking Group is forecast to report a 12.4% rise in annual net income to £17.7 billion and a 1.8% rise in full year statutory profit before tax to £7.0 billion in 2022.

Lloyds 2022 earnings preview

Lloyds Banking Group upgraded its ambitions for 2022 after raising its guidance in the last quarter, but markets believe it may have proven too ambitious and could fall short of its targets. However, the primary focus will be on the outlook for 2023 and how the combination of higher interest rates, rising costs and an uncertain economic outlook will influence its performance this year.

Let’s start with 2022. The bank’s net interest margin is expected to climb to 2.88% from 2.54% in 2021 thanks to higher interest rates, which has bolstered the amount it makes on products such as loans and mortgages. That would be just short of the bank’s pledge to deliver a margin of over 2.9% when it raised expectations in the third quarter.

Still, the improvement should lead to a strong 17% jump in annual net interest income to £13.1 billion. This is being countered by lower non-interest income at most banks, but the fact Lloyds is mostly focused on traditional banking services means it has not suffered the same fate, with the metric expected to rise 0.7% over the full year.

The topline growth has been countered by rising costs in the inflationary environment, with operating expenses forecast to be up some 15% in 2022 at £8.8 billion. Lloyds should win some applaise considering its cost-to-income ratio could come in below 50% over the full year, lower than its rivals.

Improved income will also be swallowed up by provisions put aside for potentially bad loans due to the uncertain economic outlook. This should hit the bottom-line by some £1.4 billion in 2022, which is significant considering it boosted profits by the same amount when it released reserves back in 2021.

Lloyds is aiming to deliver return on tangible equity – a key measure of how profitable banks are - of 13% in 2022, which has been upgraded from just 10% at the start of the year. But, like its margin, markets believe it may fall just short and deliver RoTE of 12.9%, according to consensus numbers from Bloomberg.

Returns for investors look safe considering the bank boasts a CET1 ratio of over 15%, well ahead of its 12.5% target (or 13.5% when a 1% management buffer is included). This should leave capital that can be funnelled back to investors through both dividends and buybacks. The annual ordinary dividend is forecast to rise to 2.44p from the 2.00p payout seen in 2021 and analysts think it could repurchase up to another £2.0 billion worth of shares in 2023.

The outlook for 2023 will be the most influential part of the results. NatWest, its other UK-focused rival, has plunged in value since releasing results last week after a downbeat outlook for this year overshadowed the revelation that profits hit their highest level since 2007 and news of a big new buyback. NatWest warned that it was ‘acutely aware’ that businesses and individuals were struggling and worried about the future even if it is yet to see any signs of financial distress among its customers, and said this was gearing its forecasts for provisions to the downside. That also meant its guidance for 2023, including for its net interest margin, fell short of expectations.

Markets expect Lloyds to aim for a net interest margin of 3.1% in 2023, limit the rise in operating costs to around 2.8% to £9.0 billion, and deliver RoTE of 13.2%. Provisions are likely to rise further this year, with the consensus suggesting they could hit as high as £2.0 billion. The level of provisions booked could be the difference between profits growing or declining in 2023.

Where next for the LLOY share price?

The Lloyds share price has been rising in a parallel channel over the past four months. Having tested resistance and climbed to a 13-month high earlier this month, we have seen the stock fall close to 5% over the past seven sessions.

We saw the stock rebound after hitting 50.50p late last week, which may emerge as a level of support if the stock remains under pressure considering this is in-line with the peaks we saw in both June 2021 and March 2022. But it could fall further, potentially just below the 50p mark, without breaking the uptrend, which is currently aligning with the 50-day moving average that is in-line with the peak we saw in September.

The initial upside target for the stock is the 2022-peak of 56p, followed by a potentially larger move to above 59p. The 21 brokers that cover Lloyds have an average target price of 64.78p, implying there is over 26% potential upside from current levels. That sits just above the next upside target of 64p outlined by the monthly chart, which also suggests that 40p should be regarded as the ultimate floor should the stock be derailed.

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