Lloyds Banking Group (LSE:LLOY, Financial), a dominant retail bank in the U.K., was this quarter’s only detractor. Lloyds issued disappointing first-quarter results. Both its net income and underlying profit missed market expectations. Coupled with the earnings release, the CEO stated that the company’s original full-year guidance is no longer appropriate due to the uncertainty caused by the pandemic. To counter this, management is seeking to cut costs by redirecting resources and eliminating other expenses, such as travel. In addition, the U.K. government’s recent 100% guarantee on incremental small- and medium-enterprise loans should help to lower credit costs while also providing an attractive net interest margin. Although we believe that the company can overcome the difficulties it is facing, we have adjusted our valuation to reflect lower near-term expectations. Overall, we find that Lloyds is trading at a large discount to our estimate of the company’s intrinsic value and remains an attractive investment.
From Bill Nygren (Trades, Portfolio) and David Herro (Trades, Portfolio)'s Oakmark Global Select Fund second-quarter 2020 shareholder commentary.
