The Lloyds Banking Group (LSE: LLOY) shares are among the most widely held by UK investors. Hundreds of thousands of Brits own stock in the Black Horse bank. Also, as the UK’s largest lender, Lloyds has around 68,500 employees, many of whom own LLOY. So the Lloyds share price is one of London’s most closely watched. And, after recent weakness, the shares are bouncing back again.
The Lloyds share price struggles to beat 50p
Over the past 12 months, the Lloyds share price has soared during a strong relief rally. In fact, the stock is up more than three-quarters (+76.1%) over one year. That’s an excellent return, ranking LLOY at #11 in the FTSE 100 index’s biggest risers since late September 2020. This powerful surge came after the shares were trading at lifetime lows last September. The stock hit its 2020 high early in the year, weeks before Covid-19 crashed markets, reaching an intra-day high of 63.84p. Alas, by 22 September 2020, it had collapsed to an intra-day low of 23.58p — down by almost two-thirds (-63.1%) from its 2020 high. Back then, I said, “I see a lifetime of value in Lloyds“.
After ‘Vaccine Monday’ (7 November 2020), the Lloyds share price roared back with the wider market. It ended 2020 at 36.44p and set off on a winning streak from late January. On 1 June, it hit its 2021 intra-day peak of 50.56p, but then weakness set in. Since June, the stock has struggled to hold 50p and declined steadily to close at 42.48p on Tuesday, 21 September. But the shares have since rebounded strongly. As I write on Wednesday afternoon, they trade at 46.3p, up nearly 4p (+9.0%) in eight days.
What could lift LLOY above 50p?
Though the Lloyds share price has been a roller coaster since early 2020, a solid company still lurks beneath. Lloyds is a huge business with a £32.9bn market value. It has around 30m customers across leading brands such as Lloyds Bank, Halifax, Bank of Scotland, Birmingham Midshires, and Scottish Widows. It also has the UK’s largest mortgage book, as well as a heritage stretching back 326 years to 1695.
But what might lift the Lloyds share price to 50p and beyond — and keep it there? When I view LLOY’s fundamentals, I see evident value. The stock trades on just 7.1 times earnings and offers an earnings yield of 14.2%. These are definitely indicative of a classic value share (though Lloyds has been a value trap for years). But another decent set of quarterly results, perhaps driven by sustained earnings growth, might help the stock to be re-rated. Also, the current dividend yield is just 2.7% a year, 1.1 percentage points below the FTSE 100’s forecast yield of 3.8% for 2021. But this cash dividend was curtailed by the banking regulator in 2020 and restored at a reduced level in 2021. Hence, news of a rising dividend also could inject fresh life into the stock.
Lloyds’ next major financial announcement is on 28 October 2021, when the bank releases its Q3 interim management statement. Thus, a good set of results might lift the stock a month from now. I don’t own LLOY at present, but I’d happily buy the shares at current levels. However, my biggest fear would be any economic setbacks caused by new coronavirus variants leading to more lockdowns. If the UK economy goes into reverse, or consumer spending stalls, then the Lloyds share price might well follow suit!
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.