Investors seem to be relatively unfazed by the poor financial results that Lloyds Bank (LSE: LLOY) released earlier today. As I write, its share price is at 32.2p, one of the highest levels seen in April. It’s true that this is a fall from yesterday’s close. But then, yesterday’s close was the highest in over a month.
I reckon the share price has remained resilient for one of two reasons. One, dismal results were expected. Coronavirus-driven lockdowns have brought business activity almost to a standstill. As a result, Lloyds suspended dividends late last month, with encouragement from the Bank of England. I think that in itself was a sign of things to come.
Investors may well have priced this in already. After all, despite the stock market crash in March, LLOY’s share price on average has been far lower in April.
Or it’s possible that investors are still digesting the entire update. As its full import is assessed, the share price could react more. LLOY’s profits are sharply reduced by a whole 95% compared to last year.
Lloyds Bank’s uncertain outlook
As a long-term investor, however, I consider share price movements in a single day only one of many factors that indicate where LLOY is headed over time. As things stand I think there’s most to be gleaned from its outlook. While it says that the “longer-term impact of coronavirus remains unclear”, Lloyds does point out that “The impact of lower rates, lower levels of activity and higher impairment on the Group’s business will continue into the second quarter….”.
For now, we just know that challenging times will continue in the foreseeable future. As an investor, I interpret this to mean that the Lloyds share price will remain relatively low for now. At its last close, it was still 31% below the level seen two months ago. After the latest results and updates of impending economic contraction, I don’t see any reason for its share price to run up any time soon.
What’s next for the FTSE 100 bank
As it is, Lloyds Bank’s share price performance over the past decade is far from reassuring for the growth investor. With its dividend payments suspended, income investors also lack incentive to buy LLOY now. However, even though I’ve long been averse to buying Lloyds Bank’s shares, I see potential for some optimism, even if it sounds premature.
According to its projections for UK’s economy, which it has used to make financial assessments for its business, Lloyds expects growth of 3% and 3.5% in 2021 and 2022 respectively. This is higher than the economy’s average growth. LLOY’s business is directly correlated with economic activity, so if this scenario plays out, it’s good news. But that remains to be seen. I’m waiting and watching for now.
