Lloyds rally looks set to put taxpayer back in the money

Mickey Clark
6 Aug 2009

Shares in Lloyds Banking Group have topped the £1 level for the first time since the start of the year, bringing them closer to the average price of 120p that the Government paid for its 43% stake in the ailing lender last year.

The price raced up 9.14p, or 9%, to 102.42p with more than 150 million shares changing hands. If it carries on at this pace, it won't be long before the taxpayer is back in the money, which will come as good news to Prime Minister Gordon Brown as he heads towards next year's general election.

Meanwhile, brokers have begun delivering their verdicts on yesterday's second-quarter results on Lloyds. UBS has a buy rating on the shares and has increased its target from 107p to that benchmark 120p. But Deutsche Bank has dropped Lloyds from buy to hold while Exane has moved from neutral to underperform but has raised its target from 60p to 80p, now well shy of the ruling price. Sandy Chen at Panmure Gordon questions Lloyds' assertion that its impairment charges have peaked and continues to rate the shares a sell with just a 40p target.

S&P Equity Research has upgraded from sell to hold and Goldman Sachs has a buy rating and has jacked up its target from 107p to 131p. The shares have risen fourfold since hitting their low of 30p in March, when the bank was locked in talks with the Government over whether to participate in its asset protection scheme.

The rest of the banking sector continued to be squeezed higher. Royal Bank of Scotland, which rounds off the bank reporting season tomorrow, was 4.4p higher at 53.1p, 3p above the 50p average the Government paid for its stake. It is now sitting on a £2 billion paper profit.

HSBC raced up 27p to 654.2p in the wake of this week's results. Barclays also put on 19p at 355.6p after shareholders voted to back the sale of its BGI subsidiary for $13.5 billion to the US fund manager Blackrock. Barclays' shares have risen almost sevenfold since their low point in January.

After yesterday's pause for breath, shares have continued to make headway again following the Bank of England's decision to keep interest rates at half a percent and to resume quantitative easing with an extra £50 billion. This takes the total to £175 billion, way above the original limit of £150 billion set by the Bank. The move prompted a sell-off in the pound, but gilt futures soared by a full point. The September series of the long gilt jumped £1 to £118.57.

The FTSE 100 index rose 27.1 to 4674.3 after touching 4729.5. That will put pressure on Harry Hedge Fund and his mates, who turned sellers of the market a few days ago in the belief that it had run too far too soon. Shares on Wall Street went into reverse after an early mark-up and news of a sharp drop in the number of jobless claims. The Dow fell 46.6 to 9234.3.

This week's good news on the housing and manufacturing fronts has indicated that the economic recovery may be already under way. But while there may be faint signs of revival in UK housing, Japanese broking house Nomura is taking a more cautious view of prospects in the commercial property market.

It has downgraded the real-estate investment trust sector from bullish to neutral following major cash raising exercises by most of its constituents in recent months, which have been used to repair their balance sheets.

Hammerson, 4.3p firmer at 380.5p, and rival Derwent London, unmoved on 1017p, have been downgraded from buy to neutral with Liberty International, up 10½p at 478¼p, cut to reduce. It has tweaked British Land's target price 15p higher to 366p and Great Portland's from 255p to 270p. Derwent's target goes up from 932p to 1017p. British Land traded 29.8p higher at 495.2p, while Great Portland was 10.2p dearer at 258.8p.

Shares in the UK's only legal cannabis grower, GW Pharmaceuticals, stood out with a rise of 5p to 80¾p after successfully raising almost £7 million.
The American company Great Point Partners has agreed to subscribe for 7.6 million new shares at 78p. At the same time, its largest institutional shareholder M&G Investment Management has bought a further 900,000 shares at the same price to prevent its current holding from being diluted.

GW grows cannabis plants at secret locations and uses the drug to make medicines for the treatment of symptoms in multiple sclerosis. In clinical trials, the drug Savitex is sprayed under the tongues of MS patients who fail to respond to existing therapies.

Unilever led blue-chips higher with a jump of 100p to 1645p following better-than-expected results.