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The Lloyds share price has doubled since September. Can it keep going?

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Image: Lloyds Banking Group

For shareholders of Lloyds Banking Group (LSE: LLOY), 2021 has been a much better year than 2020. The Lloyds share price has been climbing steadily since late January. In my view, there could be more to come.

The Lloyds share price is on a roll

The Lloyds share price ended 2020 at 36.44p, having ridden a roller-coaster last year. By 29 January, it had declined to its 2021 closing low of 33p. That left it down almost a tenth (9.4%) since New Year’s Eve. The very next day, I said that I could see LLOY hitting 50p in 2021/22. Since then, Lloyds shares have been rising steadily — and almost in a straight line.

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On Friday, the Lloyds share price closed at 48.25p, just 1.75p below the 50p target I expected it to reach. That’s a gain of 15.25p — almost half (+46.2%) — since I said that “the Lloyds share price offers a positive skew of reward versus risk”. But, given the success of the UK’s vaccination programme, I think it might go higher.

LLOY has nearly doubled from its 2020 low

Of course, 2020 was a horror show for the Lloyds share price and shareholders in the Black Horse bank. At the end of 2019, LLOY closed at 62.5p. However, as the pandemic exploded worldwide, the stock went into meltdown. At their 2020 low, the shares closed at 23.98p on 21 September. Ouch.

On 24 September, with the Lloyds share price languishing at 24.58p, I said that “I still believe that this FTSE 100 survivor is cheap as chips, so I would happily buy and hold its shares today.” Since then, this FTSE 100 stock has almost doubled (+96.3%). Furthermore, Lloyds’ market value was just £17.4bn back then, prompting me to say that “I’d happily pay this sum…to buy Lloyds outright.” Today, this Big Five bank is valued at £34.2bn, so my prediction was spot on.

What could drive LLOY higher in 2021/22?

As one of the UK’s leading lenders, Lloyds has endured a tough 15 months. But, thanks to Covid-19 vaccines, the UK economy is expected to rebound from this summer. However, with the shares at the top of their 52-week range, what could drive LLOY higher still?

I see four potentially positive drivers for the Lloyds share price. First, as a highly pro-cyclical stock, a multi-year economic boom would be great news for it (and the UK). Second, if bad debts and loan losses remain low, then the bank may release more of its huge 2020 loan-loss reserves. Third, if inflation (rising consumer prices) starts to pick up, this might mean higher interest rates. And higher rates could mean a higher NIM (net interest margin) for Lloyds. Fourth, Lloyds will pay a modest cash dividend of 0.57p a share on 25 May. But when the bank’s profits and cash flows eventually recover, this dividend could multiply.

Of course, my optimistic outlook for the Lloyds share price relies on one key factor: a sustained post-Covid recovery. But if vaccination programmes are less effective than hoped, or more new Covid-19 variants emerge, then this would be a bitter blow for humankind. In this scenario, the outcome might be more infections, higher unemployment, lower consumer spending and falling corporate profits. This outcome would undoubtedly be bad news for UK share prices, especially bank stocks. Still, and on balance, I’d be happy to back Lloyds at current price levels!

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Cliffdarcy 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.

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