Industry experts have said the share sale in Lloyds Banking Group are likely to prove popular as the offer is “pretty attractive”.
Earlier today (5 October), the government announced it will offer at least £2bn of Lloyds Bank shares to the public at a discounted price next spring.
Investors will be offered a 5 per cent discount to the prevailing market price, with one bonus share for every 10 shares bought and held for a year, subject to a maximum of £200 in bonus shares.
The bank has also started to pay a dividend again and is expected to yield 3.5 per cent this year and 5 per cent next year.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said this looks “very attractive” compared with the best ‘easy access’ savings account, which yields 1.75 per cent and compared to the 10-year government bond which currently yields 1.7 per cent.
He said: “Wild horses couldn’t drag investors away from this share sale, especially given the discounted price and the dividend stream Lloyds is expected to start churning out.
“Pensioners in particular are likely to respond to a trusted high street brand with a decent yield when interest rates are so low.”
Mr Khalaf described the terms presented by the government for the share sale as “very generous”.
“A 5 per cent discount to the market price, combined with a one for ten bonus share offer, represents an attractive deal for investors.
“The government has also said it will prioritise applications of less than £1,000, so there could be some scaling back if the sale is oversubscribed, as is likely.”
Helal Miah, investment research analyst at The Share Centre, stated the deal looks “attractive” to those investors looking to take a medium to long-term interest in Lloyds.
She said that the discount, bonus share and Lloyds’ dividend yield should start to become an “added attraction” for investors over time.
“Altogether, this could be a good deal for interested investors with a medium to long-term outlook on the stock.”
Russ Mould, investment director at AJ Bell, warned that the bonus share plan will be capped at £200 and ultimately investors should only buy the shares if they feel comfortable with the investment case for Lloyds.
“Growth is likely to be limited, as the UK is a mature and tightly regulated market, and cost-cutting can only take the bank so far.
“The bulk of any returns from the stock is therefore likely to come from its dividend yield and anyone looking to buy Lloyds therefore needs to be confident that analyst forecasts for a payout of around 3.9p per share in 2016 – equivalent to a yield of 5 per cent on the current share price – is both realistic and sustainable.”
donia.o’loughlin@ft.com
