The Motley Fool

3 reasons why I think the Lloyds share price will reach 49p this year

Image source: Getty Images.

So far in 2021, the Lloyds Banking Group (LSE:LLOY) share price has been muted. The price closed Monday around the 34p mark and has ranged from that level to just over 37p so far this year. After the slump during the stock market crash in March last year, the share price hasn’t managed to get back to previous levels around 55p. Had I bought pre-crisis, I’d be holding the stock at an (unrealised) loss. With no dividends being paid, a kick higher is needed for the Lloyds share price in order to start momentum again. So what could be some of these drivers and would I buy at its current low level?

Value and dividends

According to my figures, the market capitalisation of Lloyds at the moment is around £24.6bn. The enterprise value (an alternative way of measuring the net worth of a business) stands at £34.8bn. So if the share price rallied so that the market capitalisation equalled the enterprise value, this could be seen as a fairer price. What would this price be? Well, with 70.84bn shares in the market, this would put the Lloyds share price at 49p.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Also, it’s worth me thinking about the potential of a return of dividend payments. For companies in the financial services sector, dividends are a key way to keep shareholders happy. Last year the regulators strongly advised banks to not pay a dividend due to the pandemic. The pre-Covid dividend of 3.2p per share is therefore the last metric I have from Lloyds of potential payout numbers. 

The share price fell around 45% last year. So the same payout per share would represent a much larger dividend yield for me. This is because the 3.2p represents a larger amount relative to the share price at 35p than it did at 55p. It would provide a dividend yield over 8.5%. If that was the case, those who look for income stocks might pile in, which I think could drive the share price higher. But of course, there’s no guarantee that the payout would match the last one and I think it’s unlikely to do so.

Brexit impacting the Lloyds share price

The UK has finally left the EU and so far we haven’t seen an apocalyptic crash to the economy. I could argue that this is because Covid-19 had already done the damage! Should the economy suffer no more teething problems from the regulatory changes from Brexit, this could support a Lloyds share price move back towards 50p. This is because Lloyds is seen as a proxy for UK-based businesses. It also has the largest retail consumer base out of the other banks. As a result, it will see the financial results driven by how confident and successful UK consumers are. 

But being a proxy for UK-based businesses is also a risk to my overall argument. If the UK economy struggles due to Covid-19 and Brexit, the Lloyds share price is unlikely to gain traction. A dividend is unlikely to materialise. Added bad loan exposure could reduce the enterprise value, meaning the fair value of the stock comes lower as well.

Yet on balance, I’m optimistic going forward regarding the Lloyds share price. I think it really might reach 49p and that fits in which my investing goals so it’s back on my watchlist.

One stock for a post-Covid world...

Covid-19 is ripping the investment world in two…

Some companies have seen exploding cash-flows, soaring valuations and record results…

…Others are scrimping and suffering.

Entire industries look to be going extinct.

Such world-changing events may only happen once in a lifetime.

And it seems there’s no middle ground.

Financially, you’ll want to learn how to get positioned on the winning side.

That’s why our expert analysts have put together this special report.

If the pandemic has completely changed our lives forever, then they believe that this stock, hidden inside the tech-heavy NASDAQ, could be set for monstrous gains...

Click here to claim your copy now — and we’ll tell you the name of this US stock… free of charge!

jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.