Why Lloyds Banking Group PLC Is Exceptional Value For Money


In this article I am looking at why I believe Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) provides excellent bang for your buck.

Price to Earnings (P/E) Ratio

Based on current earnings projections, Lloyds is expected to swing from losses of 1.2p per share last year to earnings of 7.3p in 2014, and an additional 8% advance is expected next year to 7.9p. These figures leave the bank changing hands on P/E multiples of 10.4 for 2014 and 9.6 for next year.

A reading around or below 10 times prospective earnings generally considered decent, while these numbers also beat a forward average of 14.6 for the complete banking sector.

Price to Earnings to Growth (PEG) Ratio

Relative to its mooted growth prospects Lloyds can also be considered a delectable buy. The company’s move from losses last year LLOYback to earnings in 2014 does not create a PEG rating, although for next year a multiple of 1.2 materialises.

Any readout around of under 1 is considered spectacular, so Lloyds’ readout for 2015 — although outside this measure — is more than respectable.

Market to Book Ratio

Having subtracted total liabilities from total assets, Lloyds Banking Group’s book value registered at £39.3bn as of the close of 2013. This figure creates a book value per share of 56p which, at current share prices, results in a market to book ratio of 1.4.

Any reading around 1 is generally regarded as excellent, so Lloyds’ market to book ratio makes it a decent choice relative to its ‘bricks and mortar’ value.

Dividend Yield

Lloyds has failed to churn out a dividend since being bailed out in the aftermath of the 2008/2009 banking crisis, of course. But the firm is planning to ‘apply to the regulator in the second half of the year to restart dividend payments,’ it says, and City analysts expect the firm to churn out payouts of 1.5p per share this year and 3.3p in 2015.

If realised, this year’s tentative maiden payment creates a yield of just 1.9%, well short of the current FTSE 100 average of 3.2%. However, next year’s projected dividend hike sends the yield hurtling to a big-cap busting 4.9%.

An attractive all-round value selection

In my opinion, Lloyds is terrific value at current prices. The firm trades at a respectable price given its medium-term earnings prospects, and for income investors expected growth in coming years should underpin solid dividend growth, bolstered by its ongoing streamlining drive and revamped UK retail business.

Here's What The Smart Money Is Buying In 2014

But whether or not you fancy taking a stake in Lloyds Banking Group, and are looking to maximise your chances of making a mint from your shares portfolio, I would urge you to check out this EXCLUSIVE Fool report which highlights many of the pitfalls that can seriously whack your investment returns.

Our "3 Companies To Profit From The Economic Recovery" publication picks out a handful of stock market stars poised to make stunning gains over the next 12 months, and tells you how to avoid those most likely to tank. Click here to enjoy this BRAND NEW report -- it's totally free and comes with no further obligation.

A powerful return… and even more to come?

Sometimes you have to scratch beneath the surface of the stock-market to find lesser-known companies that still have lots of room to grow…

Our team of top investors have discovered what they’re calling a “Fast-Growing Pharma Play with Breath-Taking Potential” -- the shares have already delivered a powerful return over the past few years, and they believe there could be more gains to come.

… and may make savvy investors who get on-board now very rich in the years ahead.

To find out the name of one of The Motley Fool’s “Top Small-Cap Stocks” -- and to discover why our analysts are so excited -- click here to read our exclusive analysis for FREE!

Royston does not own shares in Lloyds Banking Group.