What You Really Need To Know About Lloyds Banking Group Plc Shares

Here’s what you really need to know if you’re considering buying Lloyds Banking Group Plc (LON: LLOY) shares in 2016.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Last week brought a flurry of old subjects back to fore within the banking sector, prompting yet more losses for shareholders and forcing the UK government to abandon plans for an already-belated exit from its position in Lloyds Banking Group (LSE: LLOY).

It’s with this and the current low level of the share price in mind that investors may now be wondering whether or not they should pile-in, or increase their existing positions.

If you’re one such investor, then here are a few points to consider before making any final decisions.

Implications of a PPI deadline

One of the events to have spooked investors in the banking sector during the last week was news that regulators are close to deciding whether and when to implement a deadline for PPI claims.

There are both pros and cons to any resulting cut-off date. Yes it will provide a certain end to an issue where there has been no certainty for a number of years. On the other hand, it could lead to a deluge of new claims for Lloyds to deal with.

Any such flood could have a considerable impact on earnings this year and next.

PPI 2.0: The Plevin Case

In addition to concerns over costs of the current PPI saga, investors also have the implications of the Plevin case to consider.

This issue came back to the fore last week with analysts at Autonomous Research having released a report that puts its potential cost to the industry at just over £30bn.

In the Plevin Case, the Supreme Court ruled that non-disclosure of commission payments to intermediaries (middlemen) and the non-disclosure of the recipient’s identities did, and would with other cases, constitute a breach of the Consumer Credit Act 1974.

This now sets a precedent that could eventually open up a very costly can of worms for the banking sector.

As one of the most prolific pushers of PPI, LLoyds would be heavily exposed to any new spate of litigation related to the issue.

Balance sheet, dividend & valuation

Lloyds currently trades at 1.2 times tangible net assets per share and roughly 8.5 times the consensus estimate for earnings per share in the current year.

On a price-to-earnings basis, Lloyds is valued at par with its peer group. However, using the net assets approach to valuation the group stands out as considerably more expensive than HSBC (0.66 times), Standard Chartered (0.55 times), Barclays (0.65 times) and Royal Bank of Scotland (0.69 times).

The current consensus also suggests that Lloyds will pay 2.21p per share in dividends for the 2015/16 year, which would provide shareholders with a yield of 3.5% at current prices.

Such a  payout would be more than is available at the likes of Standard Chartered, while being in line with that of Barclays and less than that at HSBC.

Summing up

Even after their fall from grace in 2015, Lloyds shares still trade at a premium to the sector, while not necessarily offering any more than their peers in return.

This premium remains despite Lloyds being the most exposed to risks coming from the Plevin case, as well as the regulator’s PPI deadline.

So it seems to me that there’s probably better value elsewhere for investors who don’t already own Lloyds shares. For those who already do, it seems that a long wait could be in order.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Skinner has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Time to sell this FTSE 100 underperformer, says Goldman Sachs

Analysts at one investment bank have a ‘sell’ rating on FTSE 100 stock Diageo. But could a short-term weakness in…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Down 5%, Glencore’s share price looks a serious bargain to me now

Glencore’s share price looks undervalued to me, supported by strong earnings growth prospects and the potential resumption of extra shareholder…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’d invest £6,580 in this FTSE 250 REIT for £500 passive income

This FTSE 250 renewable energy enterprise is on track to become a Dividend Aristocrat! Here’s how I’d invest to earn…

Read more »

Investing Articles

Buying 1,000 of some dividend shares today unlocks £45 in weekly passive income!

These shares are among the biggest dividend payers in the FTSE 100. Should investors be buying them now to earn…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

If I’d put £5k in index funds 5 years ago, here’s what I’d have now

Investing in index funds is an excellent way to grow wealth with minimal effort. But how much money can investors…

Read more »

Investing Articles

10.2% yield! 1 of the top income stocks to buy in July?

A 10% yield's pretty rare, but this firm's been growing shareholder payouts for nine years! Does that make it one…

Read more »

Investing Articles

‘FTSE 100 to skyrocket to 10,000’! 1 cheap stock I’d buy before the surge

Analyst forecasts predict a massive surge for the FTSE 100 may be coming by April 2025! Should investors snap up…

Read more »

Investing Articles

My Taylor Wimpey share price prediction for the second half of 2024

Having underperformed the FTSE 100 from January to June, our writer reckons the Taylor Wimpey share price might enjoy a…

Read more »