Lloyds Banking Group is one of the UK’s largest clearing banks and one that can trace its roots back 320 years. It encompasses three very well-known brands in the shape of Lloyds Bank, Halifax and Bank of Scotland, and it also owns and operates businesses such as Scottish Widows and MBNA. The stock is one of the most actively traded shares in the London market and the current market cap of the group is £29.40 billion, Lloyds Banking is a long-standing FTSE 100 constituent.
The Lloyds (LLOY) share price is currently 41.10 giving it a market capitalisation of £29.12 billion. The Lloyds share price currently trades on a P/E ratio 33.86 and has a dividend yield of 0.027%. The Lloyds share price is currently trading down 18 from it's 52 week high of 59.84, and 18 above it's 52 week low of 23.58.
Banking shares were under pressure for much of 2020 as the country locked down to ward off the worst effects of the Coronavirus pandemic. During this time and to date UK interest rates remained close to zero. The bank’s systems had to be reconfigured to allow staff to work from home, or if customer-facing to work in a Covid safe fashion.
Despite these challenges, the business generated 2020 profits of £1.40 billion from a net income of £14.40. However the group also set aside £4.20 billion against possible future impairment charges.
At 42p a share Lloyds Banking Group is trading above the analysts consensus price forecast for the next 12 months. See Broker Recommendations below.
Lloyds Banking Group declared a final dividend of 0.57p with its 2020 results. The bank had been prohibited by the Bank of England from paying an interim dividend in 2020 because of Covid-19. This is not the first time in recent history that the bank was not able to pay a dividend.
As the chart below shows us, between 2008 and 2014 Lloyds had to concentrate on repairing its balance sheet and rebuilding its business, in the wake of the Global Financial Crisis.
During this time, it required a bailout from the UK government. That hiatus means that the 15-year dividend growth rate for Lloyds Banking Group is a rather sorry looking -21.67%.
Lloyds Banking share price has been in recovery mode since the autumn, having gapped down from 55.9p in late February 2020. From where the stock fell to as low as 25.2p, by September 21st, before recovering and trading up to 40.795p on November 25th.
However, it failed to maintain those gains and the price only reasserted itself above 40p on March the 9th 2021. Further share price gains are possible and a move back to and through 50p, 53p and 55p could not be ruled out as the economy re-opens.
Though to have any chance of making it to these higher levels we would need to see the price consolidate and build a solid base above the 40p level, ideally taking out and staying above the 1-month high at 42.035p as it does so.
This Lloyds share price chart gives an overview of how the Lloyds share price history over the last two years.
Source Investors Intelligence
Lloyds Banking Group is currently covered by 14 analysts, among whom there are 10 buy, 3 holds and 1 sell recommendation. The consensus share price forecast for the stock, over the next 12 months, is 39.75p.
Barclays were the most recent bank or broker to write on Lloyds, on March 9th, when they raised their price target to 46p, whilst maintaining their overweight recommendation.
Goldman Sachs has the only sell recommendation, a view that they last updated at the end of January. The US bank has a 33p target price for Lloyds Banking Group.
Share prices are driven by many factors including macroeconomic news, company specific events and swings in investor confidence and psychology. For large clearing banks and financial organisations, such as Lloyds Banking Group, the Lloyds share price is driven by the below key factors:
- The level of UK interest rates and their future path - higher rates tend to improve banking profit margins.
- The cost of and return on capital. The difference between the costs that banks have to pay to raise money in the wholesale markets and the return they can generate on that money determines the businesses profitability. The current cost of capital for Lloyds Banking is approximately +4.54% whilst its return on equity during 2020 was +5.87%.
- UK house prices and housing market activity. Lloyds Banking Group has a +17.20% market share of UK mortgages. Making it by far the largest provider in the sector. Rising house prices and housing market activity should be positive for the shares.
- The impact of challenger banks, finance apps and new technology in the sector. Banking is increasingly being disrupted by the Fintech sector and new banking start-ups. For now these new business are just nibbling at edges of the sector however, they do have the potential to make significant in roads into a very mature market place and to start eating the banks lunch.
This chart of the Lloyds share price history shows the Lloyds share price over the last 10 years relative to the FTSE 100 index.
Lloyds Banking revenues are almost enetirey earned in the UK which makes it something of rarity in the export heavy FTSE 100 index. However the golden age of banking is far behind us.
Profit margins are being squeezed and UK banks are trying to replace legacy systems, reduce their headcounts and the number of branches they operate to tray and remains competitive.
Lloyds could benefit from a sustained post Covid economic rebound and its shares are up +13.0% year to date on hopes that this will be the case, that’s three times the average gain of 4.31% for the other FTSE 100 stocks over this period, though the best performing stocks in the index have posted gains of around +30% in that time.
Legacy issues continue to dog the company and until they erradicted the bottom line and the share price are likely to remain under pressure. Against that background then, there will prbabaly be more existing opportunities elsewhere.
Darren is a veteran of the financial markets with almost 36 years of experience under his belt. He has worked in trading, sales, analytical, and research roles, he has been a regular guest & commentator on financial television channels and publications. During his career, Darren has been fortunate to act for and advise major hedge funds and investment banks as well as HNWI. Darren analyses the markets using a blend of technical and fundamental analysis