After profits plunge 28%, should investors consider buying Lloyds shares?

Lloyds has seen its shares wobble following the release of its latest results. But is this a chance for investors to consider buying?

| More on:
Asian man looking concerned while studying paperwork at his desk in an office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Lloyds (LSE:LLOY) shares were down a few percent in morning trading (24 April) following the release of the bank’s first quarter results.

The stock has been gaining momentum in recent times. Yet after rising 24.8% in the last six months, its latest update may have thrown a spanner in the works.

Now sitting around the 52p mark, could this present an opportunity for investors?

An overview

Before I answer that, let’s take a look at the results.

What caught the attention of investors the most was a 28% fall in profit. For the three months to 31 March 2023, pre-tax profit fell to £1.6bn, down from £2.3bn a year ago.

The bank pinned this down to a lower net interest income and higher costs. Its net interest margin fell to 2.95% from 3.22% a year ago while operating costs rose 11% to £2.4bn, in part due to a new sector-wide Bank of England (BofE) levy.

Not all bad news

Despite that, there were positives. For example, Lloyds took an impairment charge of just £57m. That’s considerably lower than the £280m analysts had predicted and highlights the resilience of its borrowers.

Despite a competitive mortgage market harming profits, the housing market seems to be showing small signs of hope.

British house prices in March rose at their fastest annual pace since December 2022. Lloyds now expects house prices to increase by 1.5% in 2024. Before, it had predicted a 2.2% fall.

What now?

So, where does the release leave investors?

Well, I think now could be a smart time to consider snapping up some shares. It seems like banks have been held back by negative market sentiment more than anything in the last year or so. In all fairness, this may continue in the months to come.

For example, Huw Pill, the BofE’s chief economist, recently dampened hopes of a rate cut in the summer, reinforcing concerns about inflation rising once again.

We’ve also seen higher-than-expected inflation figures across the pond, which will impact the European interest rate outlook. Any sign of further setbacks could harm the stock’s price.

However, looking past that, I see better times ahead. Lloyds Chief Financial Officer William Chalmers stated he expects pressures on margins “to ease through 2024”. Even with recent uncertainty surrounding the BofE’s actions, Lloyds still sees it making three cuts this year.

While cuts will harm margins, they should hopefully provide the wider market with a boost in sentiment that will reflect on the stock in the times ahead.

Good value

The stock also looks too cheap to pass on, in my opinion. Today, investors can pick up shares in the Black Horse Bank trading on just 6.7 times earnings. That’s comfortably below the Footsie average of 11.

To go with that, the stock boasts a 5.5% dividend yield, higher than the Footsie average of 3.9%. Following a strong 2023 performance, the business announced a new £2bn share buyback scheme for this year.

Long-term vision

There may be further volatility with the Lloyds share price in 2024. And there’s a good chance that could spill into 2025.

Nevertheless, I’m holding onto my shares. And if I had the spare cash, I’d happily top up my holdings. I think investors should consider buying some shares.

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.

Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended 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.

More on Investing Articles

Investing Articles

If I’d bought Rolls-Royce shares 2 years ago here’s what I’d have now – it’s staggering!

The Rolls-Royce share price performance has been so astonishing that Harvey Jones is struggling to get his head around it.

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Where will the BP share price go next? Here’s what the experts say

Some big investing names are backing the oil business. I take a look at what that might mean for the…

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

Where is the UK stock market headed for the rest of 2024?

I've been searching high and low to uncover insightful opinions from professionals about where the UK stock market is headed…

Read more »

Investing Articles

How much passive income could I earn if I invest £200 a month in a Stocks and Shares ISA?

What's the best way to secure some long-term passive income from modest monthly investments? Here's what buying dividend stocks could…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s why I think the Legal & General share price is one of the biggest bargains on the FTSE

With a bulky yield and cheap valuation, this Fool thinks the Legal & General share price looks like one of…

Read more »

Investing Articles

1 small-cap stock with a 3.1% yield to consider for a Stocks and Shares ISA

Our writer highlights an interesting little British stock that might well warrant a place in his Stocks and Shares ISA…

Read more »

Investing Articles

Should I follow the chief executive into these UK shares right now?

This UK company director just bought shares in the business he manages – is the timing right and should I…

Read more »

Elevated view over city of London skyline
Investing Articles

I’m considering shares in this FTSE 250 investment trust while it’s trading at a discount

With this FTSE 250 investment trust trading at a discount to NAV, this Fool thinks it's a bargain. Not to…

Read more »