The tail end of 2020 has seen a turnaround in Lloyds’ [LLOY] share price. For much of the year, the stock had been suppressed as the twin pressures of the coronavirus and Brexit weighed on investor sentiment. That all changed on 6 November when Pfizer [PFE] and BioNTech [BNTX] announced its coronavirus vaccine was 90% effective. Since then, Lloyds’ share price has soared — much to the relief of its shareholders.
With hope that the end of the pandemic is finally in sight, Lloyds’ share price could be one of the stocks to watch in 2021.
What could move Lloyds’ share price in 2021?
Vaccine rollout gives Lloyds’ share price hope
Since its recent low on 6 November, Lloyds’ share price has gained 36.43% (as of 7 December’s close). A flurry of positive COVID-19 vaccine trial data and the UK’s vaccination plans have given investors further reason to be hopeful. Going into 2021, the vaccine rollout will undoubtedly be one of the primary drivers of Lloyds’ share price.
UK Prime Minister Boris Johnson has said that the UK will return to something resembling normality in the spring. Between then and now, Lloyds’ share price, which is still down 41.39% this year, could continue to recover from the damage done by the pandemic.
However, investors should beware that the Bank of England does not expect UK GDP to return to pre-pandemic levels until the back end of next year. UK Chancellor Rishi Sunak’s spending review spelt out a pessimistic view of the UK economy. GDP will contract 11.3% this year, while unemployment is forecast to hit 7.5% by the end of 2021. Other headwinds include the end of the stamp duty holiday in March, which has driven demand for Lloyds’ mortgage products this year.
For Lloyds’ share price, this could result in a revenue downturn and a spike in bad loans, as people lose jobs and struggle to pay back debt.
New boss, new direction
Lloyds ended 2020 by poaching HSBC's [HSBA] Charlie Nunn to replace António Horta-Osório as CEO. The move to bring in an outsider caught many analysts by surprise, but Nunn's appointment can be seen as a signal of Lloyds’ intent to change — or at least broaden — its strategic focus. As HSBC's global head of wealth and personal banking, Nunn brings wealth management experience to Lloyds. Making headway in this area should offset Lloyds’ dependence on interest rates to make a profit.
A former colleague of Nunn's told the Financial Times:
“Lloyds are the UK’s community bank. You don’t want a gunslinger here, you want someone with good values. Tech knowledge is his primary gift to Lloyds, but he’s also a great leader and will make sure it sticks to its mission.”
"Lloyds are the UK’s community bank. You don’t want a gunslinger here, you want someone with good values. Tech knowledge is his primary gift to Lloyds, but he’s also a great leader and will make sure it sticks to its mission" - former colleague of Charlie Nunn
While Nunn will need to get his feet under the table first, shareholders will be expecting a suggestion of where Nunn is going to take the company in its next earnings update.
The UK goes its own way
Before the coronavirus, Brexit was Lloyds’ other bête noire. The bank — for better or worse — is a bellwether of the UK economy. At the time of writing, negotiations between the UK and EU had gone down to the wire and were due to resume in Brussels.
Failure to secure a deal with the EU could see a further contraction in UK output according to forecasts from the Office for Budgetary Responsibility. As such, a deal could send Lloyds’ share price move higher, while a confirmed no-deal could see it dip.
If the latter comes to pass, it’s worth remembering that, while Lloyds’ share price did drop after the UK voted to leave the EU in 2016, it managed to claw back those losses. That makes a no-deal outcome a potential buying opportunity for traders willing to buy the dip.
Where next for Lloyds’ share price?
There’s certainly optimism around Lloyds’ share price right now, and Lloyds’ fourth quarter results could prove pivotal. In the third quarter, results saw the bank rebound into profit after losses in the first and second quarters of 2020.
Another profitable period would further boost shareholder confidence, although fourth quarter results will cover the UK’s second lockdown period. Just how much this has affected the bank’s bottom line will undoubtedly add volatility to Lloyds’ share price.
Since the beginning of December, the stock has been fluctuating just short of the 40p mark. If Lloyds’ share price cracks this level, shareholders might turn their hopes to 45p — the average analyst target on the Financial Times. Given that the stock closed at 23.98p on 21 September, that’s no mean feat.
For Lloyds’ shareholders, it would take a lot for 2021 to be as bad as 2020. With the stock in recovery mode right now and new leadership incoming, shareholders might hope to see gains next year.
|PE ratio (TTM)||37.76|
|Quarterly revenue growth (YoY)||-18.80|
Lloyds' share price vitals, Yahoo Finance, 8 December 2020