Britain’s state owned banks could be paying dividends within 18 months as they continue their recovery from the financial crisis.
Lloyds Banking Group added 0.47p to 76p and Royal Bank of Scotland rose 3p to 383.1p as Steve Davies, co-manager of the Jupiter UK Growth Fund said the banks were becoming more profitable, and were increasingly in a position to return a share of these profits to shareholders. He said:
The first test, in our view, will come when Lloyds announces its full-year results on 27 February. If the bank is allowed to pay a token dividend for 2014, we think it would send a very strong signal to the market that UK banks have turned a corner.
We believe Lloyds is capable of generating as much as 10p a share of profit of which at least 50% could be paid out as a dividend, if not more given the bank’s moderate growth outlook. In such a scenario, it would imply an annual dividend of at least 5p a share although we think it may be closer to 7p to 8p; that would support, in our view, a share price well above 100p compared to a current price in the region of 75p.
The situation appears a little different at RBS. In our view it still has some way to go with its restructuring programme but it is not inconceivable that it could start paying a dividend in 2016.
As for Barclays, the bank has continued to pay a dividend even through the lean years and should be in a position to increase payments if the new executive team led by chief executive Antony Jenkins can deliver on the targets set out in its Transform programme.
Barclays dipped 2.4p to 240.75p.
Overall the FTSE 100 finished 19.57 points or 0.29% higher at 6852.40, a fairly calm reaction to anti-austerity party Syriza winning the Greek election and to Bank of England monetary policy committee member Kristin Forbes suggesting interest rates could be raised sooner than the market expected.
European markets outperformed the UK, with a continuation of last week’s rally following the European Central Bank’s announcement of quantitative easing. But Wall Street was slightly weaker by the time London closed, after disappointing Dallas Federal manufacturing figures. Chris Beauchamp, market analyst at IG, said:
Many had expected the Greek election to unleash chaos on markets, but with the ECB having launched QE and the impact of the new government in Athens being so difficult to quantify, it looks as if the default setting in Europe remains ‘buy on the dips.’
In the UK British Airways owner International Airlines Group climbed 13p to 549p after raising its offer for Aer Lingus. Jefferies analysts said:
Hurdles remain to Aer Lingus accepting IAG’s revised €2.55 a share bid but on balance we think a deal will get done. The deal would be positive for IAG, adding further growth avenues to the already exciting outlook, and for Ryanair shareholders, who could rightly expect a cash windfall.
With the oil price steady at its lowly levels, albeit recovering from falls earlier in the day, airline shares also benefited from hopes of lower fuel costs, with easyJet up 21p to £17.56 ahead of first quarter results due on Tuesday.
Coca-Cola Hellenic Bottling was the leading faller in the FTSE 100, down 36p at £10.76, partly on worries about the situation in Greece and partly due to Citigroup cutting its target price from £14 to £11 with a neutral rating.
Lower down the market IGas Energy dropped 7.5p or 28% to 19.5p with the company’s prospects for developing shale gas hit by regulatory decisions last week. Westhouse Securities said:
We have downgraded our rating on IGas from buy to neutral following Lancashire County Council’s decision to deny permission for Cuadrilla Resources’ two proposed shale gas wells and the Environmental Audit Committee’s recommendation that there should be a moratorium on shale gas fracking in the UK. Despite the longer-term need for new natural gas supplies in the UK, these developments suggest that IGas shares will struggle to perform near term so we have cut our target price to 25p (from 164p).
