As a Lloyds Banking Group (LSE: LLOY) shareholder, I’m happy to see the price up 12% so far in February. But if you’d told me five years ago that I’d be pleased by a 37p Lloyds share price today… well, you know.
The 12-month performance is still pretty shocking, with Lloyds shares down 34% as I write. Obviously that’s all down to the Covid-19 pandemic. Well, actually, maybe not entirely. There must be a Brexit factor there too, but it all leads to pain for shareholders, wherever it comes from.
Negativity towards Lloyds does seem to be easing off, though, since Covid-19 vaccine progress has brought some cheer. Since a 52-week low of 23.58p on 22 September 2020, the Lloyds share price has gained 58%. It would have been nice if I’d topped up my Lloyds holding back in September, but why am I considering buying some more now, after that impressive rebound?
First, I want to look at the downside risks. As my Motley Fool colleague Kevin Godbold has pointed out, Lloyds is facing a potentially tough economic environment. The UK banking industry is a shadow of what we had back before that Brexit referendum. And the trade deal that our Prime Minister seemed so proud of has offered pretty much nothing to the UK’s banks.
Lloyds facing uncertain economics
Lloyds is UK-focused these days, which I reckon was a wise strategic move. And with a total of more than 30m customers, there’s still plenty of business. But we really don’t know how long the economic hardship from the pandemic will last — and I think Lloyds could be particularly affected by any lingering weakness. We have no real idea of the size of the actual fallout from Brexit either. Our negotiated exit has most definitely not left us with barrier-free trade.
So what about the bull case, from today’s rebased Lloyds share price? Well, Barclays has announced a pandemic-related impairment charge amounting to £4.8bn. I’m not going to try to guess at what Lloyds’ figure might be, but we’ll know soon enough. Lloyds will be releasing 2020 full-year results on 24 February. I think there could be some painful reading there.
But the latest from Barclays reflects some of my reasons for feeling bullish about Lloyds right now. The key development is the reinstatement of Barclays’ dividend. It’s only a modest 1p per share for 2020, but it’s a start. On top of that, Barclays plans to buy back £700m of its own shares. Boss James E Staley reckons shareholders should see a meaningful improvement in returns this year.
Lloyds share price down on the day
The markets reacted unenthusiastically, marking Barclays down 4.5% on the day (at the time of writing). The contagion spread too, with the Lloyds share price pegged back 3.7%. Will there be a more positive reaction to Lloyds’ results next week?
City analysts are expecting to see the Lloyds dividend reinstated this year, with some predicting a forward yield of better than 4%. And we’re looking at a price-to-asset value for Lloyds of only around 0.5 now. Those measures make me want to buy more.
Yes, I see some serious risks ahead. But even accounting for them, I’m tempted by the Lloyds share price.
