Lloyds stock outlook after a 47% increase in Q1 profit

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Lloyds Banking Group PLC (LON: LLOY) ended down on Wednesday even though it reported a whopping 47% year-on-year increase in its first-quarter pre-tax profit.

Lloyds stock down on increased costs

The financial institution cited strong net income on the back of higher interest rates today and said its profit before tax climbed to £2.26 billion ($2.82 billion) in Q1.

On the flip side, inflationary pressures and strategic investments pushed costs up 5.0% in the recently concluded quarter to £2.2 billion, as per the press release. Still, John Moore of RBC Brewin Dolphin said:

While an increase to costs takes a little shine off the bank’s performance, there is still a lot to be positive about.

The financial services behemoth had £3.53 billion of net interest income in the first quarter. Versus its year-to-date high, Lloyds stock is down nearly 15% at writing.

Lower deposits also weighed on Lloyds shares

Return on tangible equity printed at 19.1% versus 15.9% expected. Lloyd’s Banking Group ended the quarter with CET 1 ratio of 14.1% that matched consensus. Lloyd’s stock slid today because customer deposits were reported down £2.2 billion for the first quarter.

Shares were hit also because the full-year guidance was reiterated on Wednesday while investors wanted the bank to raise it instead. Net interest income went up 20% year-over-year to $3.53 billion in Q1. Moore added:

First Republic’s collapse has hit U.S. banks’ shares, but looking longer term, Lloyds could be among beneficiaries in that some challenger banks don’t have strength and depth to navigate the current environment.

RBC sees upside in Lloyds shares to 75 pence – up 60% from here.

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