Would the Lloyds share price be higher if the bank was listed in the US?

The Lloyds share price has surged since the beginning of the year, but it still trades at a huge discount to its US peers like JPMorgan.

| More on:
Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

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.

American investors can buy Lloyds (LSE:LLOY) stock through American Depositary Receipts (ADRs). But what if the bank’s primary listing was in the US? How much higher would the Lloyds share price be?

US listings

As noted, American investors can buy Lloyds ADRs. These are dollar-denominated and NYSE-listed with The Bank of New York Mellon as the depositary.

American investors can also purchase shares of the bank listed in the UK depending on what their brokerages offer. However, this may be more expensive than buying the ADRs because of exchange rate costs.

While I haven’t heard any rumours that Lloyds would shift its primary listing to the US, some other UK companies are doing so.

Ashtead Group — the FTSE 100 industrial equipment provider — is the latest company to reportedly consider shifting its primary listing there. It would be following in the footsteps of Flutter, Ferguson, and CRH.

Why do firms seek US listings?

There are several reasons companies might look to list in the US. First of all, it’s a larger capital market. In fact, it’s the largest and most liquid capital market in the world with access to a broader base of institutional and retail investors.

This often translates into stronger valuations. Stocks listed in the US tend to trade at higher multiples — like the price-to-earnings (P/E) ratio — than they do in the UK.

It’s also the case that the US regulatory environment can be considered favourable, especially for growth-focused firms.

Likewise, the US market may offer more visibility, and American investors tend to be more familiar with certain growth industries, like biotech.

If Lloyds listed in America

Some British companies leaving the FTSE 350 and listing in the US tend to have businesses that are more oriented to the US economy.

That’s certainly not the case with Lloyds, which is so UK-focused that it’s often considered a barometer for the health of the UK economy.

However, the slow trend of UK firms opting to list in the US might eventually escalate into a significant exodus.

So what if Lloyds were listed there? Well, it’s currently trading at eight times earnings. Meanwhile, JPMorgan’s trading at 12.1 times and Goldman Sachs at 17.8 times.

I’d add here that Lloyds is expected to grow earnings faster than both these American banks in the coming years.

It’s certainly likely that the so-called ‘valuation gap’ would be smaller, and Lloyds would trade with higher multiples.

With a JPMorgan-matching P/E ratio of 12.1, Lloyds shares would be worth the equivalent of nearly 90p.

However, there are caveats. Global investors tend to be cautious when in comes to UK-focused stocks because our economy has been stagnating. Moreover, Lloyds doesn’t have an investment arm, and this makes it less diversified and potentially more risky than JPMorgan.

The bottom line

As a UK-focused bank, I’d be shocked to see Lloyds join the exodus any time soon. However, stranger things have happened.

If it were to happen, I’d expect Lloyds to trade at a modest discount to its US peers, but at a premium to the current share price.

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.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Fox 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

Down 23%! Should I buy more CrowdStrike shares for my Stocks and Shares ISA?

Sometimes bad news can be good news for long-term investors. But is that the case for CrowdStrike in relation to…

Read more »

Investing Articles

2 UK shares near 52-week lows I’m considering snapping up

These UK shares are loitering near, or at, 52-week lows. Are these prime opportunities for our writer to boost her…

Read more »

Investing Articles

Unilever: a passive income stock with potential for decades of dividend growth

Stephen Wright thinks Unilever can keep reducing its share count for years to come. And this should help make it…

Read more »

Middle-aged black male working at home desk
Investing Articles

Worried about retirement? I’d buy high-yield dividend shares to build wealth

The number of pensioners enduring poverty in the UK looks set to rise. Investing in dividend shares could help Britons…

Read more »

Investing For Beginners

2 boring but beautiful FTSE 100 stocks to add to my ISA

Jon Smith runs over a couple of FTSE 100 stocks that he really likes the look of, even though they…

Read more »

Investing Articles

Here’s how I could supercharge my wealth by snapping up the best dividend stocks!

This Fool explains how dividend stocks play a crucial part of her aspirations to build wealth, and details one pick…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Revenue up 10% and accelerated growth potential for this overlooked FTSE 250 company

Today's first-quarter update from this good-value FTSE 250 company keeps me keen on the stock as recovery and growth continues.

Read more »

Investing Articles

Here’s why I’m so bullish about the BT share price now

The BT share price shot up after FY results, and a couple of months on it's still up there. Might…

Read more »