Lloyds Banking Group (LSE: LLOY) has been falling yet again. It seems that as soon as it looks like it might be set for a recovery, something else sends it back down. And the Lloyds share price is edging scarily close to the 40p level.
In fact, I’ve been fearing all week that it might dip even lower than that before I had the chance to offer these thoughts. But as I write, the shares are hovering around 41.5p. I think that’s good value.
Right now, the Lloyds share price has fallen 11.5% over the past 12 months.
Price levels
I do keep reminding myself that price levels reaching certain round numbers really have no particular meaning. That 40p just seems special because we have 10 fingers. If we had 12 fingers, I expect we’d be worrying about 36p or 48p.
But whatever specific price we’re talking about, the real question is over what I might do if Lloyds falls any further.
The reasons for the fall seem clear enough. It’s all about the economic outlook, rising inflation, and all that. But there’s a couple of things in there that I wonder if the market is overlooking.
Higher interest rates are actually good for lenders like Lloyds. They allow a bit of extra profit margin in their lending. We obviously don’t want interest rates to rise so high they stop anyone borrowing at all, but that seems unlikely.
Mortgage squeeze?
The other main issue is that Lloyds is the UK’s biggest mortgage lender, and there’s apparently a double whammy there. First off, higher interest should put people off considering mortgages, right? And then, people fear the cost-of-living squeeze will hit property prices themselves.
The trouble is, nobody seems to have told the house hunters yet. And the nation’s housebuilders are all reporting continued strong demand. Persimmon is the most recent to report, and it’s seeing improving gross margins and a rising order book.
Updates coming
It might just be that a property downturn simply hasn’t kicked in yet and is just around the corner. We have first-half figures from Taylor Wimpey coming on 2 August, so those should provide some useful guidance.
And before then, first-half results from Lloyds itself are due on 27 July. Any updates on Lloyds’ liquidity and cash flow would be very welcome. And I’ll have my eyes peeled for news of dividend progress.
What will I do?
While we await all of that, what will I do if the Lloyds share price drops even further, perhaps below 40p? If I had no other calls on my cash, I’d buy some more.
Right now, though, I’ve just made my most recent share purchase and I’m saving for the next one. And looking round FTSE 100 share valuations today, I’m like the proverbial kid in the sweet shop. There’s so much I’d buy if I had enough money, I’m spoiled for choice.
Bearing in mind the risks that might bite us when we get these next updates, I think the best I can do is just hope the Lloyds share price stays low for a while longer.
