The Lloyds Banking Group (LSE: LLOY) share price shows something that’s frustrated investors forever.
We see a stock that we’re convinced is undervalued. So we buy, hold, maybe buy some more… and it stays stubbornly undervalued.
That can go on for a long time, as the stock market is more driven by sentiment in the short term. Or, of course, we might just be wrong.
Outing the value
But if we’re right, then surely something will come along to out the hidden value in our stocks and make the world see them as attractive as we think? Won’t it?
There’s a few things I think could do that for the Lloyds valuation. And one of them is the price itself.
What do I mean by that? Well, momentum can drive a share price more than anything. And it can go on for quite some time. Nobody wants to break the trend ahead of the market.
But since the middle of February, Lloyds shares have been on the up. So might hesitant investors take the hint now? It’s way too early to tell if this really is the start of a new bull run. But it can’t hurt.
Buybacks
I reckon share buybacks should give a stock a boost too. A buyback reduces the number of shares in existence, and each share left gets a bit more in earnings and dividends. So the share price should rise proportionally.
With FY results in February, Lloyds announced a new £2bn buyback. That’s close to 7% of the market-cap at the time. And it should mean a 7% share price rise by the time it’s complete, in theory. Oh, it’s up 12% since then.
Analysts expect around another £3.6bn in buybacks over the next two years. Could that mean another 11% share price rise? It could take us to 57p.
Risk reduction
My final thought is that people see banks as really risky right now. In our inflation and interest rate mess, I’m not surprised. And property market pain isn’t so great for a big mortgage lender like Lloyds.
But what about when interest rates are down, the economy gets back to growth, risk falls, and we all stop being so glum? Lower interest rates alone could make shares more attractive in general.
A 60p, Lloyds share price would still mean a forecast price to earnings (P/E) ratio of only seven, based on 2026 forecasts. And that’s still only about half the FTSE 100 long-term average.
Speculative
This is all a bit speculative. And I do fear that financial uncertainty could keep Lloyds shares down for a while yet. For one thing, lower interest rates would mean lower lending margins. And the full effects of inflation could take a year or more yet to work through.
Still, I’ve just thought of something else that could boost the Lloyds share price… my hopes and dreams. Oh, hang on, no. I dream of buying more cheap shares, so I hope they stay cheap.
Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Lloyds Banking Group rebounded by 5.21% after reporting a 57% jump in full-year profits and announcing a £2bn share buyback. However, the company set aside £450m for a regulatory probe into UK motor financing.
Based on 11 Wall Street analysts offering 12 month price targets for Lloyds Banking in the last 3 months. The average price target is 60.00p with a high forecast of 70.00p and a low forecast of 50.00p. The average price target represents a 7.97% change from the last price of 55.57p.
Over the past year, Lloyds (LSE: LLOY) has been a rewarding share for investors. The dividend per share grew 15% and currently the yield is 5%. The Lloyds share price has grown 33% in the past 12 months. Still, on some measures, the valuation continues to look like a bargain.
Customers are benefiting from brilliant innovations across our business. For example, we launched 'Lloyds Bank 360' as a one-stop-shop for wealth, financial education and coaching. While our 'Ready Made Investments' are making it much easier to invest – and over half of these customers are under the age of 35.
Investors look at a bank's growth potential as a key valuation factor when determining a fair value for the stock. A bank's share price can be affected by three types of risk: interest rate risk, counterparty risk, and regulatory risk.
The bank's commitment to digital innovation, sustainability, and operational efficiency is likely to drive long-term growth. Investors should keep an eye on key economic indicators and market trends, but the overall outlook for Lloyds remains positive.
We note that hedge funds don't have a meaningful investment in Lloyds Banking Group. BlackRock, Inc. is currently the largest shareholder, with 9.2% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 5.0% and 4.9%, of the shares outstanding, respectively.
GLG Partners, Gladstone Capital Management, Marble Bar Asset Management and SFM UK Management are all betting against the stock, according to the Financial Conduct Authority.
The next Lloyds Banking Group dividend will be declared on 25-Jul-2024. This Lloyds dividend will be the 2024 interim dividend with an ex-dividend date in Aug-2024 and a dividend payment date in Sep-2024.
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In just a few weeks since the first half of February, the shares have moved up 25%. Despite that increase, they trade at a discount to book value and on a price-to-earnings ratio of just seven. That makes the bank look cheap by some measures. Indeed, that could explain why investors have been bidding its shares up.
Lloyds says that the purpose of the programme is to reduce its ordinary share capital, and the company intends to cancel all repurchased shares. The buyback, announced alongside its annual results on Thursday, comes after Lloyds lifted its final 2023 dividend to 1.84 pence from 1.60 pence a year prior.
During the period, net interest income for the British bank grew 4% to end the year at £11.16bn ($14.54bn), while income from other streams grew 12% to finish at £5.06bn. Meanwhile, the bank reported a surge in profitability as it set aside less money for credit losses.
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Introduction: My name is Cheryll Lueilwitz, I am a sparkling, clean, super, lucky, joyous, outstanding, lucky person who loves writing and wants to share my knowledge and understanding with you.
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