The Lloyds share price is down 8% year-to-date, so how does a discerning investor choose whether to go in on the banking mainstay for their portfolio?
Lloyds’ shares are currently trading at a PE ratio of 5.9, which is could be perceived to offer value compared to its fellow banks, with HSBC at 9.5 and NatWest Group at 9.7.
The banking group also boasts a forward PE ratio of 7, indicating positive analyst profit forecasts for the year ahead, given the volatile macroeconomic conditions geared up to intensify for the rest of 2022.
Lloyds’ has a dividend yield of 4.4%, with a dividend cover of 3.9, cinching the company’s reputation as more than capable of dealing out and growing its dividend, with adequate room to spare if the market capsizes amid geopolitical tensions.
Financial Results
Lloyds reported strong results for Q1 2022, with a post-tax profit of £1.2 billion against £420 million in Q4 2021 and a 12% year-on-year net income growth to £4.1 billion.
As a result of its promising Q1 2022 results, Lloyds actually enhanced its guidance for its banking net interest margin and return on tangible equity, with the former projected to be above 270 basis points and the latter estimated beyond 11%.
The bank also said it expected operating costs of £8.8 billion and risk-weighted assets beyond £210 billion by the close of 2022.
Lloyds has also shored up its financial balance for provisions against increased risks tied to inflation, with an additional £100 million added to its reserves in Q1 2022 to protect from inflation shocks, predominantly in its Retail book, which is considered more vulnerable to disposable income falls on the climbing cost of living.
Consensus
Lloyds’ has reported a strong performance over the last quarter, with climbing revenues they may be helped by higher interest rates, notwithstanding the shocks of inflation growth in 2022.
In addition, the stock appears undervalued compared to peers, and more than adequately covers its dividend payments and looks set for growth in the coming months.
There are far worse bets to place than Lloyds’, however time will tell how well the bank has shored up its defences against the looming cost of living crisis as inflation looks set to hit 10% by autumn this year.