The Motley Fool

The Lloyds share price is rising: here’s what I’d like to do

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.

Hand arranging wood block stacking as step stair on paper pink background
Image source: Getty Images

CORRECTION: This article previously stated that “There is still uncertainty as to when the bank will resume its dividend.” Lloyds was only allowed to pay 0.57p per share for 2020 due to the caps imposed by Prudential Regulation Authority – previously, it paid 3.21p for 2018 and 3.05p for 2017, respectively.

The FTSE 100 index crossed the psychological 7,000 level this April. This was the first time it breached this level since the Covid-19 pandemic started last year. The successful vaccination drive has increased investors’ confidence. This is also evident in the strong performance of the Lloyds (LSE: LLOY) share price, which is a UK-focused bank.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

I would like to see if it’s a good investment for my long-term portfolio.

Why the Lloyds share price might rise

Lloyds Bank has managed the Covid-19 crisis very well. The outgoing CEO, António Horta-Osório, has to his credit saving the bank following the 2008 financial crisis and now, during the pandemic. The government had pumped in £20.3bn for a 43% stake in the bank during the financial crisis and the Treasury fully sold all of its shares with a profit of about £900m.

The market experts are forecasting strong GDP (gross domestic product) growth in the UK. The Ernst & Young Item Club expects GDP growth of 6.8% in 2021. Goldman Sachs predicts an even faster growth of 7.8%. This is a big positive for a domestic-focused bank like Lloyds bank. 

The strong expected economic growth is also evident in the bank’s recent first-quarter results. Lloyds Bank made a net impairment credit of £323m, which was driven by a £459m reserve release, due to the UK’s improved economic outlook. This is the amount that the bank had set aside for potential loan losses. This helped to increase the underlying profits to £2.1bn, compared to £558m for the same period last year.

The bank’s mortgage business is doing well. The stamp duty holiday and the UK government’s mortgage schemes should continue to help the bank’s business. Loans and advances increased to £444bn from £443bn and customer deposits increased by 8% year-on-year to £462bn. The bank’s balance sheet remains strong. The common equity tier 1 ratio (CET1 ratio) is 16.7%. This is significantly higher than the regulatory requirement of 11%. 

The bear case for Lloyds share price

Most of the sectors of the economy are expected to be fully open in the coming months. However, it is too early to celebrate. If Covid-19 cases increase then the growth might be derailed. Also, actual GDP figures might differ from the analysts’ growth estimates. This, in turn, might negatively impact the bank’s profits. 

Lastly, the outgoing CEO is known to have brought significant positive changes to the bank. There is always the initial uncertainty about the new CEO. If the new management makes some wrong decisions, then the stock might fall.

Final view

The bank is fundamentally strong. At the current price, Lloyds shares are trading at a price-to-book ratio of 0.65, compared to the historical five-year average of 0.81. I would consider buying Lloyds shares now. 

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.