Lloyds Banking - significant value for retail investors?

So, the government has confirmed that Joe Public will be able to buy as much as £4 billion of Lloyds Banking shares at below-market prices if the Conservatives win next month's general election. It's no surprise - in last month's Budget, George Osborne said he would sell at least another £9 billion of Lloyds shares in the year ahead. It doesn't change the outlook, either. But the shares have traded sideways for months and should do much better, according to one bullish broker.

Prime Minister David Cameron said over the weekend that an election win for the Tories next month would pave the way for an offer of Lloyds shares for UK retail investors. It's said the public may register to buy up to £10,000 in shares which will be sold at a 5% discount to the market price. Hold the shares for a year and they'll receive one free share for every 10 they own.

Once the £9 billion is sold - about 15% of the bank - the taxpayer would be almost completely off the share register in one year's time. "We regard this as a healthy development. But earmarking a proportion of an intended sell-down for a retail offering will not change the end game or the value of the bank," says Deutsche Bank.

However, the broker thinks a retail offering would have to wait until after the Competition and Markets Authority Retail and SME Banking review has concluded. "A sale to retail investors ahead of a potentially adverse finding from the Authority - not our base case - would be politically damaging and easily avoided by delaying a sale."

"In our view this puts a retail offering in 1Q16 probably preceded by a block sale to institutional investors in 2H15 assuming a decent post-election economic and market environment," adds the bank. "With a following wind it is feasible that a retail offer could see UKFI exit entirely."

It also believes the political situation is more favourable now. A Conservative majority would see a more supportive market for bank stocks versus a labour equivalent is the market's view. However, there is a perception now that a Labour win would not necessarily mean an enforced break-up of either Royal Bank of Scotland or Lloyds.

Still, Lloyds shares have traded sideways for months despite an equity bull market, and they've underperformed longer-dated UK government gilts by miles in the year to March. That said, Deutsche is still a buyer ahead of first quarter results on 1 May.

"We think LBG offers significant value at 9.7x 2016 adjusted EPS and with a 4% current year dividend yield and retain a BUY and 94p target price."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.