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Lloyds share price: last chance to buy below 30p?

Lloyds’ [LLOY] share price rallied 3.1% last week — a surprising turn of events considering the stock had been hammered by disappointing half-year results at the end of July.

Since those results, however, it seems investors are betting that the worst is now behind the bank. Given just how much Lloyds’ share price has fallen so far this year, there could still be time for investors to snap up a bargain before the stock breaks through the 30p level.

 

 

What's happening with Lloyds’ share price?

Lloyds’ share price briefly touched 30p a share last Wednesday before closing the week firmly in the black. Some analysts are asking whether it's about to smash through the 30p level for good. If Lloyds’ share price manages this, it could be set to rise even higher. 

Kevin Godbold, writing on the Motley Fool, notes that the stock gained 200% in the months following the 2009 credit crunch. The hope is that Lloyds’ share price enjoys a similar bounce back this time around.

However, there are obvious headwinds. The UK is in a deep recession and a second wave of coronavirus could scupper any economic recovery. There is also increasingly dire economic data to contend with. So, what are the factors that could see Lloyds’ share price break through the 30p price target for good?

 

What could move Lloyds’ share price above 30p?

'Relatively good' credit quality

Despite the risks of loan defaults, Lloyds’ credit quality is, actually, quite good. At least that's the view of Robbert Manders writing on Seeking Alpha. Manders highlights the steps Lloyds has taken to improve the risk profile of its mortgage book, including improving the LTV of its loans and the bank’s decision to slow mortgage originations in London in 2014, as prices became inflated in the capital.

"I have been following Lloyds Banking Group for some time, and risk management is a central theme for them," wrote Manders.

All in all, Manders reckons the credit quality of the bank’s loan book will drive a 60% upside on Lloyds’ share price.

“I have been following Lloyds Banking Group for some time, and risk management is a central theme for them” - Robbert Manders

 

UK economic outlook

One headwind for Lloyds is the damage the coronavirus has done to the UK economy. Last Wednesday saw the UK plunge into the deepest recession since records began. Triggering this was a 20.4% drop in GDP — the steepest of all the G7 countries.

“I’ve said before that hard times were ahead, and today’s figures confirm that hard times are here,” commented UK chancellor Rishi Sunak.

And with the government-run furlough scheme set to end in October, the worst could be yet to come for Lloyds. The ending of the scheme is set to trigger a wave of job losses that may, in turn, lead to more credit defaults for the bank. Lloyds has already had to set aside £3.8bn in impairment charges for this eventuality.

Still, there is hope. Figures show that GDP went up 8.7% in June, fuelled by consumer spending as lockdown measures eased. The next update will be crucial for understanding whether this is a longer-term trend or a one-off. If GDP continues to go up, Lloyds’ share price could see a sustained run past 30p.

 

Market Cap£20.461bn
PE ratio  (TTM)72.28
EPS (TTM)0.40
Quarterly Revenue Growth (YoY)-69.5%

Lloyds share price vitals, Yahoo Finance, 17 August 2020

 

So, time to buy Lloyds?

Topping 30p would be one thing, but sustained momentum could see Lloyds’ share price break to 40p. UBS has a 40p price target on Lloyds, which would see a 38.1% upside on the current price through 14 August’s close.

Among the wider pool of analysts, Lloyds’ share price carries a 39p 12-month average target. Hitting this would see a 47.7% upside on Lloyds’ current share price. With the stock still trading 60% below its 52-week high, now could be the time to buy Lloyds.

Disclaimer Past performance is not a reliable indicator of future results.

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