Llyods has long been an established giant of the banking industry, however as investors grow more cautious of gloomy 9% inflation and shrinking household budgets, what comes next on the horizon for the financial institution?
The Bank of England hiked interest rates 0.25% to 1% earlier in May, with experts predicting an additional rise to 1.25% at its next meeting in June, which would add value to Lloyd’s investments through higher net interest margins.
However, the recent surge in inflation to 9% is set to potentially see a significant decline in their customer’s financial health which could be exacerbated by more interest rate increases.
Huw Pill talks about what we’re doing to bring inflation down. And he gives his view on the outlook for the UK’s economy. https://t.co/ca20IS02Ad pic.twitter.com/7SLM1CcMqz
— Bank of England (@bankofengland) May 20, 2022
Lloyds’ share price has fallen 7.7% year-to-date, and with the prospect of rising macroeconomic complications, the share price could be set to drop lower in the coming months as inflationary pressures hits the banking sector.
However, it might be the right time to invest, as Lloyds has a record of bouncing back from economic disruption with strength.
The company beat management expectations in its Q1 2022 results with a profit of £1.6 billion, surging ahead following the Covid-19 pandemic downturn.
Lloyds shares valuation
The banking giant currently has a PE ratio of 5.6, representing value when compared to peers, with HSBC Holdings at 8.6, NatWest at 8.8 and Standard Chartered at 9.8.
Lloyds pays an attractive 4.6% dividend and has a robust dividend cover of 3.9, indicating that the company’s payouts are set to remain covered despite the looming inflationary pressure.
Lloyds shares may dip in the short-term, however the banking mainstay is in strong financial health for future growth.