Lloyds’s share price has rebounded this week after a Bank of England induced selloff.
A week ago (Nov 4), the Bank of England shocked the market with a dovish decision. The Monetary Policy Committee (MPC) voted 7-2 to leave the base rate unchanged at 0.1%. Pound Sterling slumped in the aftermath of this decision; big bank stocks dived three to five percent, including Lloyds.
Why was the market caught off-guard by this rate decision? In the weeks prior to the meeting, several MPC members appeared to be paving way for a rate hike decision by highlighting the inflation threat. Supply chain issues, labour shortage and a rise in raw material prices could push inflation to above the central bank’s 2% inflation target. But the BoE did not follow up with this rhetoric. The market was disappointed and confused.
For banks, however, the rise in inflation may be a positive factor because they can charge more interest on loans. For example, US bank stocks did not drop even though inflation is spiking there. Yesterday, the US inflation shot up to 6.2%, the largest rise in 30 years. So we can expect UK bank stocks to maintain their recovery trends for now.
At the time of writing this morning, Lloyds share rose by more than 1% to 49.9p.
Since our last commentary, Lloyd’s share had a one-day drop of 4.4% on November 4, which was caused by Bank of England’s shock decision.
However, the selling did not persist. In fact, prices have found technical support around the 48p level. In doing so, it keeps the long-term trend bullish.
The recent consolidation is probably viewed as an opportunity to buy Lloyds shares. We expect prices to test and regain the 50p mark soon.
Not much has changed on Lloyds’ earnings outlook over the past month. According to a panel of 24 brokers listed in the Financial Times, 17 are still recommending ‘Buy’ or ‘Outperform’ (November 4). This is a fairly bullish consensus.
On price targets, the most bullish case for Lloyds is at 90p while the most negative scenario is at 42p. We expect Lloyds’ share to trade within this range in the next few months.
The case for buying the £35 billion bank is still sound. Lloyd’s underlying earning trend is growing, credit impairment remains minimal despite the pandemic, and we can expect some dividends in the future.
The current Lloyds (LON:LLOY) share price is 40.88 which is a change of -0.98 or -2.33% from the last closing price of 40.88 with 241493444 shares traded giving Lloyds a market capitalisation of £27755427996. The most recent daily high has been 42.24 and daily low 40.52. The Lloyds share price 52 week high has been 56 and the 52 week low 0.59. Based on the most recent Lloyds share price opening of 40.88, the current Lloyds EPS (earnings per share) are 0.06 and the PE (price earnings ratio) is 6.76.
Data automatically updated every 15 minutes
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Lloyds share price trades at its highest level since March 2020 and rallies on bullish outlook on positive trading outlook.
Last week, UK’s largest domestic bank reported its trading results for the first nine months of the year. The bank announced net income of £11.6 billion in the year to September, up 8 percent.
In particular, Lloyds Bank benefited “from increased average interest-earning assets of £443.0 billion, a banking net interest margin of 2.52 per cent and other income of £3.8 billion.”
Credit quality is better than expected, with net impairment credit of £740 million. The bank is trading through the pandemic without major credit hiccups.
Looking forward, the bank predicted that its “return on tangible equity now expected to be over 10 per cent” which is higher than market’s expectations. Overall, the market is expected Lloyds to enjoy good income growth, low credit default, and high return on equity.
At the time of writing, Lloyds share trades above 51p.
Lloyds share price extended its bull run after the latest trading results.
It started this week strongly, and opened a modest price gap at around 50.90p. This re-affirmed the upwave from 41p.
As prices now surpass the summer high at the psychological level at 50p, we expect the rally to hold and push further. The near-term target is at 55p.
At the same time, there is some risk of a consolidation because the current rally is almost eight-weeks old. Share prices don’t move in a straight line, but in a zig-zag manner.
A retracement to the round number level at 50p may be used a buying opportunity.
With the last trading statement, analysts are now upgrading the stock.
Deutsche Bank, for example, is now recommending a ‘Buy’ for Lloyds stock, with a price target of 60p. According to a panel of 24 brokers tracked by the Financial Times, 18 are recommending a ‘Buy/Outperform’. This is bullish for the stock. The highest price target for Lloyds Bank is 90p. while few analysts expect the bank to trade below 40p in the next few quarters.
Moreover, the bank may increase its dividends after a bumper year. This may attract more institutional investors that require income.
Lloyds Banks share price rebounded on Monday as it aims to expand outside its core banking service. Last weekend, news emerged that the UK-focussed bank will be aggressively expanding into wealth management.
According to the Mail on Sunday, the boss of Lloyds’s wealth management division Antonio Lorenzo wants to stop haemorrhaging capital transfers from Lloyds to other platforms such as Hargreaves Landsdown (HL).
“Every year,” he said, “more than £10billion is moved from Lloyds to personal pension providers. Our ambition is that in three to five years, we want to grow to more than 10 per cent (from 3 percent) market share.” The bank aims to bulk up and improve its platform services.
Certainly, the £33-billion bank has scope to increase its market share from existing providers, although competition will be tough. This latest drive follows from another Lloyds’ lateral move into rental market via Citra Living.
At the time of writing, the bank share trades at 47.4p.
Lloyds Bank share price has been trending higher in recent weeks. In fact, the whole banking sector is rallying despite the market jitters as a result of spiking energy prices.
Technically Lloyds Bank has reaffirmed the round-number floor near 40p, a level reinforced by the long-term moving average.
With other bank shares already overcoming their summer peaks, such as Barclays (BARC) and RBS (RBS), Lloyds may be pulled higher into the 50p resistance. But its relative strength against these bank peers is lagging.
If you take the view that financial sectors will outperform the market in the near term, you may want to take a look at US banks too. JP Morgan (JPM) is sitting at new all-time highs. In the LSE, you can buy the iShares Financials (IUFS) that track the entire US financial stocks.
The forecast for bank stocks is generally bullish. This can be seen from number of brokers putting positive forecast on Lloyds’ share. More than half of the broker panel is ‘Buy’ or ‘Outperform’. Lloyd’s share price is holding firm because of institutional support.
However, the number of ‘Hold’ has increased over the past year too. This means that some believe other banks may be a better bet than Lloyds.
For the first half of 2021, Lloyds’ net income is about £7.6 billion. This is ample enough to support the dividend yield of 2.6 percent.
Source: Financial Times