Lloyds Banking Group (LSE: LLOY) is one of the UK’s most widely held shares. That’s partly because 65,000 people work for the group, many of whom own company shares. What’s more, Lloyds is very popular with UK retail investors, with hundreds of thousands appearing on its shareholder register. Thus, the Lloyds share price is keenly watched, so here’s what happened to it in 2021.
The Lloyds share price in 2021: highs and lows
As I write, the Lloyds share price stands at 48.43p, up 0.43p (+0.9%) on the day’s close. On 31 December 2020, the stock closed at 36.44p, so it has added almost 12p this calendar year. That’s a healthy increase of almost a third (+32.9%) in 2021. This easily beats the FTSE 100 index’s gain of 15% since 31 December 2020.
However, the Lloyds share price has been somewhat higher — and much lower — this year. Last month, it hit an intra-day 52-week high of 51.58p on 2 November. It has since fallen back by 3.15p (-6.1%). Then again, Lloyds stock had a weak start to the year, hitting its 2021 intra-day low of 32.25p on 28 January. It has since soared by 19.33p from this bottom, surging by 60%. Happily, this vindicated my repeated arguments that it was a great recovery play for 2021.
Is Lloyds still a value play?
At the current Lloyds share price of 48.43p, the Black Horse banking giant is valued at £34.4bn. To me, this seems a modest price tag for a leading UK lender with 30m customers and market-leading positions and brands. But UK banking has been a difficult and troubled business since the global financial crisis of 2007-09. As a result, British bank shares trade on modest ratings.
At present, Lloyds shares trade on a price-to-earnings ratio below 7.4 and an earnings yield of 13.6%. Those figures definitely appeal to me as a veteran value investor. But the UK regulator ordered banks to suspend their cash dividends in 2020 — and when they returned, they were rebased at lower levels. Hence, the Lloyds dividend yield (previously one of the FTSE 100’s highest) is just under 2.6% a year. That’s some way below the wider FTSE 100’s yield of roughly 4%. Still, these figures suggest to me that Lloyds shares remain firmly in value, unloved or overlooked territory.
Positive and negatives for Lloyds
When I look ahead to 2022-23, I see two negatives and two positives for Lloyds and its share price. First, the bank’s profits were greatly boosted this year by loss write-backs, as actual loan losses proved to be considerably lower than forecast. These gains are unlikely to persist next year, taking a chunk out of bottom-line growth. Second, Covid-19 is yet to be beaten, so further new variants might hit UK economic growth and Lloyds’ earnings next year.
Now for the positives. First, the Bank of England this month raised its base rate from 0.1% a year to 0.25%. This, the first rate rise for three years, will be followed by others in 2022 as the Bank seeks to curb rising inflation. Higher rates should lead to higher net interest margins (NIMs) for UK banks. Second, if Lloyds uses its billions of pounds of spare capital to keep lifting its dividend, then this could support the stock going yet higher.
In summary, I don’t own Lloyds shares, but I would buy, while hoping for a sustained economic boom in 2022!
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Share Price in 2022
I don’t own this stock, but I’d happily buy it at the current Lloyds share price. Here’s why. First, Lloyds is a £36.5bn FTSE 100 heavyweight operating under a host of top brands. It has the UK’s largest mortgage book and is a leading supplier of credit to households and businesses. Its major brands include Lloyds Bank, Halifax, Bank of Scotland, Birmingham Midshires, Scottish Widows, MBNA, and Black Horse.
Second, with UK inflation soaring, the Bank of England raised its base rate on 16 December and 3 February. The base rate is now 0.5% a year, from 0.1% before these two rate rises. Higher interest rates are positive for banks, boosting their net interest margins (NIMs). And with more rate rises expected in 2022-23, Lloyds should earn a higher spread between its lending rates and savings rates.
Third, if mortgage lending stays strong and consumers start spending on credit again, this loan growth should lift Lloyds’ profitability. Likewise, if businesses gain confidence and start borrowing more, this could support the Lloyds share price. Finally, Lloyds has billions of pounds of spare capital on its balance sheet. It could choose to return some of this as higher cash dividends and more share buybacks.
Finally, Lloyds shares look cheap to me right now. They trade on 7.8 times earnings and an earnings yield of 12.8%. Though the dividend yield of 2.3% is low, I expect it to increase over time. These are undemanding fundamentals, suggesting to me that this stock remains in value territory. But if Covid-19 returns with a vengeance, then the Lloyds share price could become very volatile — and even fall steeply again, as it did in 2020!
The Lloyds share price roller-coaster
Before coronavirus swept the globe, the Lloyds share price was holding up just fine. On 13 December 2019, the stock closed at 64.3p, before easing back to end 2019 at 62.5p. But as the Covid-19 pandemic unfolded, Lloyds shares collapsed. On 3 April 2020, Lloyds closed at 27.73p, before rebounding in the summer. However, Lloyds shares found an even lower low, hitting a rock-bottom price of 23.58p on 22 September 2020. The very next day, I said that I saw a lifetime of value in Lloyds.
Then along came ‘Vaccine Monday’ (9 November 2020), with news of highly effective Covid-19 vaccines. By the end of 2020, the Lloyds share price had recovered to 36.44p. It also had a great 2021, ending the year at 47.8p and up almost a third (31.2%). Lloyds also restored its cash dividend in the second half of 2021, having cancelled it in spring 2020. The Lloyds share price closed at 51.38p. That’s a 7.5% gain since December, versus just 1.8% for the wider FTSE 100. But I think there could be more to come for this stock in 2022-23.