Effectively, I wasn’t anticipating that. The Lloyds Banking Group (LSE:LLOY) share price closed 4.9% larger 20 February, after the financial institution launched its 2024 outcomes.

At one level, its inventory was up 7.6%, having set a brand new 52-week excessive of 67.6p.

And but the financial institution failed to satisfy analysts’ expectations on a lot of key measures. In these circumstances, I’d usually anticipate the group’s worth to go down. As a substitute, traders collectively determined that its market-cap needs to be over £1.15bn larger.

Decrease-than-expected earnings

For instance, the consensus of analysts was for post-tax earnings of £4.64bn. The financial institution missed this by £161m (3.5%). Additionally, at 12.3%, its return on capital employed was 0.3 proportion factors decrease than forecast.

Nevertheless, my greatest shock is that traders appeared to disregard the rise within the quantity put aside to cowl fines and compensation arising from the Monetary Conduct Authority’s (FCA) investigation into the alleged misselling of automotive finance.

Beforehand, the financial institution had estimated that it may need to pay £450m. This has now been elevated by an additional £700m, to £1.5bn. Nevertheless, it’s nonetheless decrease than the £4.2bn (or 6.9p a share) that one analyst reckons it’ll value.

As occasions have unfolded, we’ve seen how delicate the financial institution’s share price has been to numerous court docket judgements, FCA bulletins and media experiences. With disappointing earnings and a rise within the motor finance provision, I used to be anticipating a big correction within the share price, particularly because it’s carried out so strongly in current months.

Egg on my face

However I used to be unsuitable. Nevertheless, on nearer inspection, it’s simple to see why traders reacted so positively. Regardless of the bottom charge being lower, it managed to document a web curiosity margin of two.95%, which was according to ‘expert’ predictions.

Additionally, the financial institution’s elevated its dividend. The payout for 2024 will now be 3.17p. This beat market expectations by 2.6%. Even with the post-results bounce within the share price, the inventory’s yielding 4.8%. Additionally, it’s introduced one other £1.7bn of buybacks.

Nevertheless, I imagine future dividends and share buybacks might come underneath menace if the motor finance provision must be elevated additional. When there’s a must protect money, these are simple targets.

However I believe the Lloyds share price isn’t the cut price it as soon as was. It has a price-to-book (PTB) ratio of 0.88. On paper, this means the inventory’s low cost. Nevertheless, in accordance with McKinsey & Firm, the common PTB ratio of 1,500 listed banks is 0.9, the bottom of all sectors.

And its shares now commerce on a a number of of 10.5 instances its 2024 earnings. With all the FTSE 100’s banks now reporting their 2024 outcomes, it’s potential to compile a league desk of price-to-earnings (P/E) ratios, and Lloyds is on the backside.

I imagine this displays the current share price rally fairly than traders ranking the financial institution extra extremely than the others. Lloyds is sort of completely reliant on the home economic system, and with the UK struggling to develop, I concern the financial institution’s future earnings might disappoint traders. Additionally, I’ve no concept what the ultimate invoice could be as soon as the FCA completes its investigation.

For these causes, I’m not going to take a position.