Would Lloyds bank sale echo Royal Mail IPO and encourage more first-time investors?

Otmane El Rhazi from Mindful Money » Shares.

The sale of £4bn of Lloyds shares to the general public proposed by the Conservative party over the weekend, would be a positive move for private investors, as it will encourage them to save and invest for the future claims broker Hargreaves Lansdown.

Some 40% of investors it surveyed said that their first investment was in an IPO (Initial Public Offering) but around 90% of companies exclude retail investors from their flotation.

Laith Khalaf, senior analyst, Hargreaves Lansdown said: “The public sale of Lloyds shares would be such a large and high profile offering, it would undoubtedly generate a lot of interest from the public, and would prompt many people to invest for their future for the first time.”

The Royal Mail flotation of 2013 was a similarly high profile sale by the government, which captured the public imagination. The offer was seven times over-subscribed, such was the demand for shares.

Some 28% of Royal Mail investors surveyed said it was their first ever stock market investment. However many companies coming to market only offer shares to institutional investors. Around nine out of every ten companies coming to market in 2014 excluded retail investors from their flotation.

Lloyds is already popular with DIY investors

Around 14% of DIY investors hold Lloyds – based on Hargreaves Lansdown clients – and collectively have 2.5% of their portfolios in the bank. Lloyds makes up around 2% of the FTSE All Share, so DIY investors are effectively ‘overweight’ the stock.

Khalaf said this proportion is likely to grow, if Lloyds returns to paying a dividend as expected. “Analyst expectations are presently for anything between a 3.3p and 7.0p dividend per share in 2017, which would equate to a yield of between 4.2% and 8.9%, assuming today’s price of circa 80p per share,” he said.

Fund managers are underweight Lloyds

UK fund managers are not as positive on the bank. Collectively they hold 1% of their portfolios in Lloyds, so are underweight the stock. “Part of their reluctance to invest probably comes down to the overhang of a large amount of stock, which the government is soon going to look to offload,” said Khalaf.

But he highlighted that there are some high profile fans of the bank amongst professional investors though – Steve Davies holds a 7% exposure in his Jupiter UK Growth fund, and Alistair Mundy holds 4% in his Investec UK Special Situations fund.

Khalaf said: “Even some income fund managers have built up positions in Lloyds, despite the fact it isn’t currently paying a dividend. Adrian Frost, manager of the £7 billion Artemis Income fund, has a 1.7% position in Lloyds as he believes the bank will soon be paying a rising dividend stream.”