t’s been a mixed end to the year for Lloyds [LLOY]
and its share price. The banking group has seen positive news in terms of favorable High Court judgements, but negative press in relation to salary packages and compensation schemes. All this bad energy in the press, however, doesn’t appear to have affected investor sentiment. The stock is currently up 25.22% YTD at $63.86, despite plummeting to a low for the year of $48.58 in August.
Meanwhile, in late November RBC Capital Markets set Lloyds share price with a target price of 66p. On Monday 16 December, the bank shot past this target, closing at a new year-to-date high of 67.25p.
A share price boost throughout November coincided with some other good news for the banking group after a high court judge in London dismissed claims by shareholders that the bank’s senior management had misled them prior to Lloyds’ takeover of HBOS in 2008. Had Lloyds lost the case, it could have cost it up to £650m.
However, just months after defending the boss’s generous salary package the bank announced it would be cutting its chief executive Antonio Horta-Osorio’s pay by £228,000, in response to criticism over its pension policies.
Finally, on 10 December, HBOS reared its head again as commentators took to the media to say the compensation scheme had “serious shortcomings”. Calls are now being made for Lloyds to reassess customers’ claims.
An interesting pick?
In November Lloyds was singled out by Morgan Stanley as the UK bank with the strongest growth potential as the firm upgraded its rating for the European banking sector. Lloyds’ overweight rating was based on factors including its success in reducing costs, certainty around its capital plans and growing profitability.
Lloyds has been described as an interesting pick from a technical perspective by Zacks Equity Research, which referenced positive trends on the moving average crossover front. Zacks were so encouraged that they hold a buy rating on the group.
|PE ratio (TTM)
Operating margin (TTM)
Lloyds share price vitals, Yahoo finance, 19 Dec 2019
The firm also referred to an overall upward trend in earnings estimate revisions and consensus estimates for Lloyds.
Similarly, according to Hargreaves Lansdown, of the 12 analysts covering the stock, only one has given it a sell recommendation compared to seven who have labelled it a buy, while it currently holds a consensus price target of 75.37p. A potential 19.8% upside if hit.
Standing out from the competition
Berenberg also thinks Lloyds is better placed than most of its competitors to thrive in an uncertain British economic environment. Its analysts recently suggested that investors should overlook any concerns about its strategy due to the relative simplicity of its core business, and its high exposure to the domestic market compared to rival banks.
The only downside from this analysis is that Berenberg believes these factors will only sustain growth in the short-term.
This observation underlines the extent to which Lloyds’ future growth is predicated on how successfully Britain can negotiate a favourable trade deal with the EU post-Brexit. We reported earlier this month
that despite lingering economic uncertainty, Lloyds’ share price is up on the back of optimism that the UK will leave the EU with a deal. So far this year, it has risen by 25%.
Lloyds share price increase YTD
Lloyds could also be hard hit (along with other banking groups) from a sustained slowdown in the global economy given the potential for bad debt to increase.
On the upside, the bank can now start to put the financial cost of the payment protection insurance scandal behind it and get back to being the reliable dividend income generator it was renowned as before 2008.
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