Monday was the first trading day of 2021 and already Lloyds Banking Group (LSE: LLOY) has seen its shares slip. Yesterday, the Lloyds share price closed down 1.6p at 34.84p, which was 4.4% lower to start the year. If you were a Lloyds shareholder before or throughout 2020, then you have my sympathy. In the past 12 months, Lloyds has crashed by almost half (44.8%) in a sickening roller-coaster ride for its owners. But, in the words of PM Boris Johnson (and Winston Churchill before him), I see ‘sunlit uplands’ ahead for the Black Horse bank when life returns to a post-pandemic normal.
The Lloyds share price loves to fall
Ranked by share-price performance, Lloyds was #95 in the FTSE 100 for 2020. Alas, this was just the latest in a long line of bad years for Lloyds shareholders, tens of thousands of whom work for the group. For the record, the Lloyds share price is also down 28.8% over two years, 46.1% over three years and 50.5% over five years. In short, being a Lloyds owner has been a thankless task for the past half-decade. But I am optimistic that when Lloyds stops the rot, shareholders will enjoy bumper returns as the bank recovers and strengthens.
Lloyds had a hard 2020
At the current Lloyds share price, the group is valued at a mere £24.7bn. That’s a very modest market capitalisation for the UK’s biggest bank with over 26 million customers. It’s also a low price tag to pay for a business that made £3bn of statutory pre-tax profit in 2019. Alas, thanks to Covid-19, 2020 was a very different ball game for Lloyds. Being the UK’s biggest lender to individuals and businesses in the worst pandemic for 100 years — and the biggest economic collapse in three centuries — hasn’t been ideal.
With the UK locked down for much of the first half of 2020, Lloyds’ half-year results were pretty gruesome. This was largely due to £3.8bn of reserves set aside to cover bad debts and loan losses. However, generous government support for workers and businesses helped to cushion the blow later in 2020. As a result, Lloyds actually made a pre-tax profit of £1bn in the third quarter. Yet the Lloyds share price declined steeply after the summer, falling to a lifetime low of 23.59p on 22 September.
My bullish case for Lloyds
If long-term Lloyds shareholders have almost lost heart, then consider this. Today, the share price is almost half (47.7%) higher than its September low. Back then, I said the shares offered a lifetime of value at such depressed prices. Despite the recent rebound, my view has yet to change significantly.
For me, Lloyds offers one of the highest exposures to post-pandemic recovery, yet at relatively low risk. Although it will make a loss in 2020 and pays no dividend at present, this will change in 2021. News of the resumption of quarterly cash dividends could come as soon as next month. When dividends return, these shares will look much more attractive. And this news should inject new life into the Lloyds share price. Finally, Lloyds has a rock-solid balance sheet stuffed with low-risk home mortgages. Thus, for me, it’s a one-way bet on recovery. That’s why I’d happily buy these shares today, ideally inside my ISA, to enjoy a lifetime of tax-free dividends and capital gains!
