The Lloyds (LSE:LLOY) share price has been trading in a tight range between 40p and 50p for almost a year now. The past month has been particularly good though, with the share price climbing almost 20%.
On the chart below, we see that it’s once again attempting to secure a decisive break above the key 50p level that supported the price before Covid. Similar attempts were made in early 2022 and 2023 but it failed to stay above 50p for long.
Third time lucky?
I’m looking at the various factors that could decide the direction of the price, including an announced fresh spate of branch closures and a looming scandal on the horizon.
Damage control?
In the current economic environment, several factors can impact a bank’s share price. Most notable are interest rates, followed by the rising cost of living, and mortgage rates combined with an increased demand for housing.
Branch closures, by comparison, are likely the least of its concerns. For the most part, closures are the result of dwindling foot traffic as new customers increasingly adopt mobile banking.
The interest rate situation remains uncertain but so long as rates remain high, Lloyd’s is benefiting. The extra revenue means Lloyds has been able to spend £2bn on share buybacks this year, with a further £1.4bn planned.
On paper, this all looks good for the investor but read between the lines and it could be the actions of a bank doing damage control.
Another financing scandal
Lloyds has been identified as a key offender in the recent motor vehicle financing scandal. It became the first bank to publicly announce a compensation package in response to the allegations, to the tune of £450m.
It’s too early to know just how deep the scandal goes. However, people have already begun comparing it to the PPI scandal that rocked Britain in the early 2010s. While it may never reach that level, it’s hard to ignore the similarities between the two.
Furthermore, there’s been a swathe of insider transactions in the past three months. Notably, chief sustainability and corporate affairs officer Andrew Walton recently sold 396,387 shares to the tune of £192,485. However, he reportedly received 3.7m vested shares as part of an incentive plan days prior to the sale so the sale seems small by comparison, .
Decent financials
Looking at its balance sheet and recent earnings, Lloyds appears to be doing quite well.
- Independent analysts estimate shares to be undervalued by 56%, with an average one-year price target of 59p — up 20% from current levels
- With a trailing price-to-earnings (P/E) ratio of 6.4, Lloyds is slightly below the industry average (yet higher than both HSBC and Barclays)
- Last month’s earnings report revealed record pre-tax profits of £7.5bn, up 57%
- Liabilities are well-covered by assets
- Its reliable dividend with a 5.6% yield is a nice cherry on top
So overall, other than the vehicle financing scandal, Lloyd’s is in a fairly good position. If I were already invested, I would hold for now.
To buy?
Well, I’d want to see a sustained move above 50p before I made a decision. Yes, I’d miss out on the cheap entry point. But when it comes to my portfolio, I tend to err on the side of caution.
