Is Lloyds Banking Group an Exciting Emerging Market Play?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

LONDON -- While crippling austerity in Europe has put the brake on growth rates in Europe, a backdrop of accommodative central bank action, elevated commodity prices, and rising personal affluence levels has created an exceptional investing opportunity in developing countries.

The divergence between traditional and emerging markets is borne out by latest International Monetary Fund projections, which puts U.S. growth at 1.9% in 2013, while eurozone GDP is set to dip 0.3%. Conversely, emerging markets are anticipated to expand 5.3% this year.

Bubbly activity in developing geographies can create large opportunities for many London-listed firms. Today, I am looking at Lloyds Banking Group  (LSE: LLOY  ) (NYSE: LYG  ) and assessing whether its operations in these regions are likely to underpin solid earnings growth.

Bank stepping up withdrawal from foreign territories
Lloyds announced at the end of April that pre-tax profit leapt to 2 billion pounds in the initial three months of 2013, up substantially from a profit of 280 million pounds in the same period last year. Total underlying income rose 3% to 2.4 billion pounds, helped by the sale of its 20% stake in St James's Place for 394 million pounds in March.

The results were principally driven by a 40% decline in impairment charges, to just more than 1 billion pounds, and the bank expects further "substantial" reductions moving forwards. The group also saw costs cut by 6% to 2.4 billion pounds, with further heavy cost-cutting in coming years ready to bolster the balance sheet further.

The majority of Lloyds' retail operations are conducted in the U.K. through flagship brands including Lloyds TSB, Halifax and Cheltenham & Gloucester, and approximately one in three British people do business with the bank. The firm also carries out activities in far-flung regions, although it is in the process of scaling back its operations abroad to concentrate on its domestic marketplace.

Lloyds has historically had a wealth of operations spanning the globe, including the lucrative high-growth regions of South America, Asia, and the Middle East. But the company is rapidly withdrawing from these regions in a bid to scale back non-core operations and strengthen the balance sheet.

The company has reduced its foreign exposure by a third over the past two years, reflecting a 77% decline in total underlying income from its International division to 73 million pounds. Indeed, it announced or completed withdrawal from 12 overseas countries last year, and plans to pull out of a further four territories in the current year.

So is Lloyds Banking Group a buy?
Forecasters expect earnings per share (EPS) to bounce back into positive territory in 2013, after Lloyds slashed losses in 2012 to 2 pence per share from 4.1 pence per share previously. EPS is expected to come in at 4.3 pence this year before leaping 28% in 2014 to 5.5 pence.

The company has said that it wants to return cash to stakeholders at the earliest opportunity, even though a sickly balance sheet has prevented the company from doling out dividends, and analysts expect this to occur sooner rather than later. Projected dividends of 0.2 pence per share and 1 pence per share for this year and next carry meager yields of 0.3% and 2%, although this is a step in the right direction.

The bank currently trades on a P/E readout of 12.6 for this year, above a forward earnings multiple of 11.5 for the entire banking sector, but which collapses to 9.8 in the following 12-month period.

In my opinion, Lloyds' earnings turnaround is actually likely to be bolstered by its reconcentration on domestic operations and withdrawal from overseas markets, at least over the medium term. The firm is a reliable play in the U.K. retail sector and this makes it worthy of investment consideration, in my opinion.

The canny guide for clever investors
If you already hold shares in Lloyds Banking Group, check out this newly updated special report, which highlights a host of other FTSE winners identified by ace fund manager Neil Woodford.

Woodford -- head of UK Equities at Invesco Perpetual -- has more than 30 years' experience in the industry and boasts an exceptional track record when it comes to selecting stock market stars.

The report, compiled by The Motley Fool's crack team of analysts, is totally free and comes with no further obligation. Click here now to download your copy.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2416043, ~/Articles/ArticleHandler.aspx, 10/28/2016 6:21:22 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,161.19 -8.49 -0.05%
S&P 500 2,126.41 -6.63 -0.31%
NASD 5,190.10 -25.87 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 12:07 PM
LLOY $57.74 Up +0.24 +0.42%
Lloyds Banking Gro… CAPS Rating: No stars
LYG $2.83 Down +0.00 +0.00%
Lloyds TSB Group CAPS Rating: ***