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View the article online at http://citywire.co.uk/wealth-manager/article/a743058

Allianz's Gergel: Gov't stake sale does not make Lloyds a buy

by David Campbell on Mar 26, 2014 at 13:03

Allianz's Gergel: Gov't stake sale does not make Lloyds a buy

Chancellor George Osborne declared today’s sale of 7.5% of Lloyds shares ‘good value’ for UK taxpayers, but some have questioned the long-run value for buyers.

‘The government’s placing is no reason to buy the stock – it does not change the fundamental picture - we don’t see much value there,’ said Citywire A-rated Simon Gergel, manager of the Allianz UK Equity Income fund .  

‘[The shares] already trade at a significant premium to book value and have only modest growth prospects, compared to say HSBC which looks cheaper and has better structural growth opportunities.’

The sale to institutional investors, the second in the last six months, raised £4.2 billion and cut the government’s stake in the company to 24.9%. Shares in Lloyds fell 4.8% following the placing, to the issue price of 75p, fractionally above the government’s purchase price of 73p.

That hardly represented a discount however, added Gergel. ‘Lloyds looks fully valued on 1.7x tangible book value, compared to HSBC which trades at 1.3x tangible book value and has greater exposure to growth regions of the world, such as Asia. 

‘The growth prospects for Lloyds in the UK are limited as the economy is mature and we believe that low interest rates and high levels of consumer and government debt will restrain economic growth and the demand for further credit.

‘Maybe there will be less interference going forwards, though Lloyds has not been impacted by the government anywhere near as much as RBS.  Also the government/regulators are quite able to affect banks without owning equity in them.’

Over the last three years the Allianz UK Equity Income fund has returned 43.2 versus a rise of 36.26% by the FTSE 350 Higher Yield Index.

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