On key measures, Lloyds Banking Group (LSE: LLOY) shares look cheap. And I think there’s a fair chance they won’t stay that way for long.
The price edged up above 50p a couple of times this year. But each time, fresh market jitters sent it back down. One day they’ll head up and stay up, won’t they?
We’ve seen the fundamentals many times. Lloyds shares are on a price-to-earnings (P/E) ratio of only 6.7 on City forecasts. What’s more, it drops below six based on the outlook for the next two years.
The dividend yield looks set to hit around 5% this year. And it should rise in the next two years. Cover by earnings looks strong too, at well over two times.
Why so cheap?
If we can all see this, why do Lloyds shares stay so cheap? A few things are holding the price back. But I see signs they might ease this year.
Inflation is a big killer. It means high interest rates. And yes, that helps with loan margins. But mortgage costs at crippling levels are not good for the UK’s biggest home lender.
So March inflation falls, but it’s higher than hoped, and bank shares wobble again.
But if we turn from these figures and hear what retailers are saying, things don’t seem quite so bad. They already see some wholesale costs falling, but it can take a few months to feed through to shelf prices.
Inflation to halve?
We’ve just heard from ex-chief economist at the Bank of England Andy Haldane who thinks inflation should fall sharply in the next few months. He sees less than half the current rate in six months’ time.
Might that mean we have less than that long to wait before the Lloyds share price gets into a bull run and stays there? Those who want to make some cash from share prices can hope so.
But then, some of us want the dividends. And we want to be able to top up with more cheap shares as and when we can. I think it would be nice for buyers like that if Lloyds shares can stay low as long as possible.
Property market
The weak property market hurts mortgage lenders too. But it’s all due to the prices and interest rates. If we see those ease, I think we should see demand pick up again.
It’s been like that after every other fall in the past, and I’m sure we’ll see the same again.
Now, I don’t want to gloss over the real risks that bank stocks face right now. And I’ve touched on them above. While the UK is in a bad state, bank shares could suffer a lot.
Lloyds results
The way things look, even a solid set of FY22 results from Lloyds didn’t help much. Folks rightly have their eyes on the future and not the past.
But we have Q1 news due on 3 May, and that should give us some clue how 2023 is going. It might just move the Lloyds share price.
