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The Lloyds share price spiked to 41p before falling today! Would I buy LLOY now?

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After years and years of share-price declines, could the tide finally be turning for Lloyds Banking Group (LSE: LLOY) and its unloved stock? And could the Lloyds share price get past 50p and reach three figures again? Let’s take a look at today’s news for clues.

Lloyds releases its 2020 results. They’re not so bad

Today (Wednesday) saw the Black Horse bank unveil its full-year results for 2020. Given that the world is still battling a global pandemic, they’re not as bad as feared. As a result, the Lloyds share price spiked upwards this morning, before sliding back.

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Being the UK’s largest retail lender in the biggest-ever recession is obviously not ideal circumstances for Lloyds. With over 26m customers, Lloyds has heavy exposure to higher bad debts and loan losses from consumers and businesses. But these impairments totalled a mere £128m in the fourth quarter. Clearly, borrowers are still paying their debts. Thanks to this steep fall in loan-loss provisions, Lloyds actually made a profit in 2020. Yet, as I write, the Lloyds share price now trades fractionally down on the day.

In 2020, loan losses at Lloyds totalled £4.2bn. These reserves crashed Lloyds’ pre-tax profit by over seven-tenths (72%) to £1.2bn. Still, this means that Lloyds averaged a monthly profit of £100m in the worst British economy in history. Earnings per share collapsed by two-thirds (66%) to 1.2p. Thanks to this profit, and with approval from the UK banking regulator, Lloyds was able to reinstate its cancelled dividend. It’s only 0.57p a share, but that’s the maximum allowed by the Bank of England at the moment. This equates to just short of a 1.5% dividend yield, based on the current Lloyds share price of 39.06p. At least that’s a start.

Despite the economic ravages of Covid-19, the Lloyds balance sheet is in very good shape. Core tier one equity (one measure of financial strength) rose again, this time to 16.2% of risk-weighted assets. This is way above the regulatory minimum laid down by regulations. Also, Lloyds’ net interest margin (NIM) was 2.46% — pretty solid, given the circumstances. Yet the Lloyds share price failed to hold onto earlier gains, spiking to 41p after the market opened, before dropping back by 2p.

The Lloyds share price should benefit from recovery

In 2020, the Black Horse could barely trot, hobbled by Covid-19 restrictions. But when this big beast starts galloping again, this could inject new life into the Lloyds share price. Of course, if the coronavirus crisis worsens or lingers too long, this spells bad news for British banks. But with mass vaccinations rolling out rapidly across the UK, this gives me cause for optimism.

Today, with the Lloyds share price hovering just above 39p, this values this British institution at £27.8bn. That’s a very modest price tag for a very big bank. Right now, Lloyds shares are bang in the middle of their 52-week range between 23.59p on 22 September 2020 and 54.38p on 24 February 2020. In addition, Lloyds is valued at around half of its net tangible book value (0.5 x NTBV). Summing up, Lloyds shares look cheap to me today, assuming that all goes well in the second half of 2021. I might even have to buy some Lloyds stock for my family’s income portfolio!

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Cliffdarcy 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.