Should You Invest £1,000 In Lloyds Banking Group PLC Today Or Wait For The Spring Share Offer?

To buy now or to buy later, that is the question with Lloyds Banking Group PLC (LON:LLOY).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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) is currently the market’s favourite FTSE 100 bank. Few would have made that prediction seven years ago when the Black Horse was hobbled by the acquisition of HBOS and only kept on its feet at all by a government bailout.

Back then, HSBC, Barclays and particularly market-darling of the time Standard Chartered all looked better placed to make a swifter recovery from the financial crisis than Lloyds.

Yet, here we are today, with the Black Horse leading the field on most of the operating and capital ratios that are important in the business of banking.

Despite its high standing, Lloyds’ shares looks decent value at around 76p, as I’m writing. The price to tangible book value of 1.4x may be richer than that of its peers — who are trading at a discount to book — but there is scope for a higher rating still. Meanwhile, the forecast price-to-earnings ratio for 2016 is firmly in value territory at 9.5x. And, just for good measure, next year’s dividend forecast gives a juicy yield of 5.1%.

The government’s stake in Lloyds has come down from 43% at its height to little more than 10% today. Further share sales to institutions and this month’s announcement of a retail share offer in the spring will see Lloyds wholly back in private hands.

I’ve suggested Lloyds is good value today at 76p, but will you get even better value for money in the retail share offer?

What we know of the offer so far is:

“It is the government’s intention to fully exit from its Lloyds shareholding in the coming months, and as part of this at least £2bn of shares will be sold to retail investors. Members of the public will be offered a discount of 5% of the market price, with a bonus share for every 10 shares for those who hold their investment for more than a year. The value of the bonus share incentive will be capped at £200 per investor. People applying for investments of less than £1,000 will be prioritised”.

If you bought £1,000 worth of Lloyds’ shares today at 76p (and ignoring transaction costs), you’d be the owner of 1,316 shares.

But, if the shares are still 76p next spring, the 5% discount would give you an effective buy price of 72.2p. Your £1,000 would bag you 1,385 shares. Then, if you held for a year, you’d get your 1 bonus share for every 10, so an extra 138 shares. The bonus cap of £200 would be unlikely to reduce your 138 shares, because Lloyds would have to be trading at 145p come bonus time for that to happen, which seems a bit of a stretch.

So, buying today at 76p would give you 1,316 shares, but buying in the spring offer — if the market share price remained 76p — would net you 1,523 shares, including the bonus shares if you held for a year.

However, Lloyds’ shares are currently well below their year high. How would you do waiting for the spring offer, if the shares were back to their 89p high? Well, the 5% discount would give you an effective buy price of 84.55p, and your £1,000 would bag you 1,183 shares. The 1 bonus share for every 10 after a year would take you to 1,301 shares … which is not much less than the 1,316 shares you’d get at 76p in the market today (and that excludes transaction costs).

In short, then, it would appear to be worth waiting for the share offer, unless you are convinced Lloyds’ shares are going to be 90p+ come the spring.

Finally, it’s worth reiterating the government statement that “people applying for investments of less than £1,000 will be prioritised”. If you’re looking to invest substantially more than £1,000 in Lloyds, you’re unlikely to achieve it through the share offer alone.

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.

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

Dividend yields of nearly 10%! I’d buy both these bargain FTSE 100 shares

Our writer highlights a pair of income shares from the flagship FTSE 100 index that each yield nearly 10% and…

Read more »