Lloyds share price hanging on to 50p ahead of Wednesday’s Q1 earnings report. Where to now?

Down in April and with low earnings expected this week, Mark David Hartley investigates where the Lloyds share price might be headed.

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Let’s be honest: the Lloyds (LSE:LLOY) share price has been on a bit of a losing streak for most of April. But it’s still fighting hard to stay above the key 50p price point it cracked in March.

It’s now down 4.4% after hitting a yearly high of 54p at the start of the month. That was the highest it traded in over two years, so a mild correction is to be expected.

But will the upward momentum that it enjoyed through February and March return?

A bad start to the year?

Lloyds is set to release its first-quarter financial results this Wednesday, 24 April. Despite interest rates still hovering around a 10-year high, the results are not expected to be good. The UK banking sector has taken a hit this year as uncertainty around rate cuts is limiting borrowing.

The bank is expected to report £1.7bn in profit, down from £2.3bn in the first quarter of 2023. Ouch.

Barclays and NatWest release results the same day, with similar subdued expectations. If that happens, I would imagine prices for all three will likely be down later in the week. 

So what is Lloyds doing to turn things around?

Risky restructuring

For several years now, the bank has been reducing its focus on mortgages as a result of rising house prices and fierce competition in the industry. However, in a more recent surprise move, it decided to slash roles in its risk management department — an odd choice considering the recent car pricing scandal.

Apparently, the risk department was hindering the bank’s progress, making it more difficult to compete with newcomers. Now it wants to focus more on digital services to improve its competitive edge and attract new customers. The rapid rise in smaller digital banks and lenders has been putting strain on traditional institutions like Lloyds for some time now.

I believe this is a move in the right direction.

Economic woes

Unfortunately, banks are naturally very sensitive to the wider economy and, in the UK, it’s simply not playing ball. Stagnant sales, slow growth, and high debt — combined with delayed rate cuts — have left consumers frustrated. I don’t expect to see much improvement until after the election later this year.

The economic woes are evident in the banking sector. Lloyds hasn’t exactly done much in the price department for the past few years. It’s been stuck in a range between 40p and 50p since 2021 and two prior attempts to break out of it failed. With Wednesday’s earnings report expected to be uninspiring, I don’t imagine this attempt will fare much better.

Still good value

But with a 5.5% dividend yield and a solid track record of making payments, I feel it still has good value. And it’s well-established enough to weather most storms — barring another 2008-style crash, of course.

And even with the recent move above 50p, cash flows suggest the price could still be undervalued. Consensus among analysts’ estimates is that a price of £1.15 would be more fair. And with a low price-to-earnings (P/E) ratio of 6.5, one would expect the price to grow. 

I think it will – as soon as the economy gets back on track. It could just be a bit of a waiting game.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Hartley has positions in Barclays Plc and Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. 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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