Managers hail government’s Lloyds sale

Fund managers have hailed the government’s sale of part of its Lloyds Banking Group stake as a key milestone for the stock and an important step in the broader UK economic recovery.

Managers at major fund groups including Schroders and Ignis have said the sale by the government of £3.3bn worth of shares justifies their long-term position in the company and proves even more upside is yet to come.

Jessica Ground, manager of the Schroders UK Core fund, said the company’s UK equity team had long been “believers in the bank turnaround story” after investing in the stock at an early stage.

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“It is encouraging to see it played out as we hoped it would,” she said.

Ms Ground said she had not increased her stake in the bank but that the sale by the government marked further positive momentum for Lloyds.

“The closer Lloyds can get to normalisation and not have the government as a shareholder the better for the business,” she said.

“If a shareholder has a 40 per cent stake you need to manage that shareholder so the fact the government has been able to sell part of its stake at a profit means the relationship must be easier. It would be more difficult if the government didn’t realise a profit.”

Ms Ground added she thought the government would look to sell a second tranche of shares when there was clarity about the dividend the stock would be able to pay.

“At the end of this year or next year, we will get an idea of the payout ratios so we will know what the progression will be,” she said.

Ignis UK equity manager Ralph Brook-Fox, who has a 5.5 per cent holding in Lloyds in his Balanced Growth fund, also cheered the success of the government’s sale of Lloyds shares and expected further disposals after positive third quarter or full-year results.

“Although a smaller amount than predicted by some, to me, it strikes the right balance between getting the process underway with the removal of an immediate overhang, while at the same time seeking to maximise overall value for the taxpayer by waiting for potentially supportive news flow for further disposals,” he said.

Rob James, a UK equities analyst at Old Mutual Global Investors, said it was likely Lloyds would post strong results in the coming months and this could prompt further share disposal by the government.

“One of the things Lloyds has been encouraging us to look at is its interest margin which has been widening quite markedly and it will continue to do so,” he said. “Come February next year when we get the full year results I wouldn’t be surprised to see another large amount of stock from the government.”

Mr James said the government’s sale of its stock attracted investors from the US and that this interest could drive demand in future sales.