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Good news for those interested in the UK banks, and Lloyds (LLOY) in particular. The high-street bank recently confirmed an enticing 0.5p special dividend for shareholders, taking their yield to a solid 4% amid its continued post-crisis turnaround. Yet even more exciting is the recent market rally seeing the shares recover to the government’s 73.6p breakeven price on its 2008 £20bn bailout. This means the £2bn discounted share sale the Chancellor announced in early October and planned for the Spring could be imminent. A tough start to the year for markets saw Lloyds shares trade below 70p for most of Jan/Feb and the share sale idea was shelved due to the government not being allowed to sell any shares in Lloyds at a loss. After all, it was you the taxpayer that helped bail out the bank. It’d be a bit much to shoulder you with a loss too! But concerns the government may never claw back our investment will have eased now that shares have bounced 30% from their lows. The government might be about to make a dash for it given calmer market conditions and ahead of the much debated UK’s ‘Brexit’ referendum on EU membership.
Here’s a little reminder of the proposed share sale parameters. £2bn worth of Lloyds shares are being offered at a 5% discount to the prevailing price; applications for £1,000 worth or less are likely to be prioritised; there is a loyalty bonus of 1 share for every 10 still held after a year. Based on a £1,000 investment, this suggests potential returns of around 20% are attainable in the first year after the sale (£50 discount, circa £40 dividends, £100 loyalty), even if the share price doesn’t move. And note brokers suggesting a 12-month target of 84p implying 15% upside which could boost share sale participants’ returns to 35%. In fact, the discount and loyalty bonus offer investors a cushion should shares fall in value by up to 10%.
While the government has been gradually selling down its 43% stake since 2009, the proposed IPO-like sale is designed to allow the public to purchase part of the treasury’s remaining 9% stake and to profit from the bank’s turnaround, full re-privatisation and return to financial markets The idea saw huge excitement back in October (250,000 expressions of interest – more than the Royal Mail IPO in Oct 2013) and we expect a second wind after the bank’s encouraging full year 2015 results last week helped the shares pop back above 70p on suggestions that those nasty provisions for PPI mis-selling are close to being a thing of the past and that bigger dividends are on their way.
To be sure you don’t miss out on a Lloyds discounted share sale, click here to stay posted. Opportunities like this don’t come round often – George is rarely this generous.
Mike van Dulken, Head of Research, 4 Mar
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Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research