Why I believe the Lloyds share price could soon return to 90p

The few days before 12 April could be make-or-break for Lloyds Banking Group plc (LON: LLOY) and its share prospects.

| 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.

Let me confess upfront — I’ve been expecting the Lloyds Banking Group (LSE: LLOY) share price to soon return to 90p for a few years now.

Lloyds shares are on a P/E of only eight, with forecast dividend yields of 5.5%, and rising. Dividends would be covered more than twice by earnings and, on the face of it, I’d say that looks like a bargain valuation.

But when the market pushes a whole sector down you have to pay attention, and a low valuation is not necessarily an incorrect one. So what reasons are there for a bearish stance on Lloyds?

The elephant

Fellow Fool Royston Wild explains what clearly seems to be the biggest threat, a no-deal Brexit. Should that come to pass, much of the country will have a lot more to worry about than the price of Lloyds shares. We could be facing critical shortages, and would very likely experience a lengthy period of worsening economic gloom.

While our departure from the EU was looking like happening by the planned date, or soon after, I thought the lifting of that millstone could well trigger an uprating of the financial sector. But that was on the assumption that we’d actually get a deal, and if we don’t, then the financial underpinning of the economy will surely suffer — the banks, that is.

But Royston was writing a week ago, and that’s a long time. Since then, Prime Minister Theresa May has done the unthinkable and started talking to the Labour Party to try to reach an agreement.

Delays

And as she’s off trying to get another delay, it seems the heads of Europe are talking about a flexible extension of up to a year. That sounds very sensible to me — I’d much prefer Brexit to be done right than done quick.

On the upside for Lloyds, if there’s a significant delay then that could drag us back from the brink of a no-deal disaster. On the downside, further delays could turn soon into maybe not quite so soon yet.

There are plenty of other difficulties facing Lloyds and the other big banks. As Royston also points out, there’s increasing pressure in the mortgage market, and with Lloyds now pretty much refocused as a UK retail operation, it’s susceptible to that.

But I think the share price has always taken into account those easily-seen uncertainties, and then some — current share valuations look far more discounted to me than is justified on such grounds.

Turning?

I also see sentiment changing. Lloyds shares are in a bit of a rally right now, having doubled the FTSE 100’s performance since the start of the New Year — Lloyds shares are up 20% compared to the index’s 10% gain. I can’t help feeling that suggests investors are coming to realise their fears are overblown and the shares are oversold.

With the risk of a no-deal Brexit looking like it might be pushed back, again, I really can see Lloyds shares regaining 90p, and then more. But depending on the length of our next delay (assuming we get one), we might have to be flexible over the value of soon.

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.

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has no position in any of the shares mentioned. 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

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

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

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

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 »