The Lloyds share price has provided investors with an opportunity to enter the UK banks following a sharp decline from highs of 56p.
For long-term investors, the recent pull back in Lloyds shares, coupled with their recent market update, may create the perfect scenario for those considering a purchase of the bank’s shares.
Lloyds share price
Lloyds shares are currently trading just above 45p – the lowest level since December 2021 – having dropped nearly 20% from recent highs around 55p.
This dip will provide a great opportunity for investors who have digested Lloyds recent report and are optimitic about their outlook.
Lloyds reported a 9% increase in Net Income to £15.8bn and enjoyed a rise in return on tangible equity to 13.8%.
This reflected an improvement in trading conditions in 2021 as the bank recovered from the pandemic.
Lloyds reported a statutory profit before tax of £6.9 billion and statutory profit after tax of £5.9 billion which was helped by increased income and the reversal of bad debt provisions made during the pandemic.
Lloyds also said they were hoping to put the HBOS issues to bed by making provisions for the total estimated cost of charges.
However, Lloyds shares have since plummeted, not solely because of disappointment around their earnings, but the impact of geopolitics on markets and interest rate expectations.
Lloyds Net Interest Margin
Lloyds saw Net Interest Income rise 4% to £11.2 billion in 2021 and there will be expectations this increases further in 2022.
This argument can be justified by the expectations of higher interest rates, and because of recent strong performance in their lending business.
Lloyds saw their Net Interest Margin rise to 2.54% in 2021 from 2.52% in the year prior.
Although the crisis in Ukraine may dampen the Bank of England’s enthusiasm for the number of interest hikes in 2022, Lloyds will already be enjoying the impact of two rates hikes in recent months.
Lloyds dividend
Notwithstanding hopes for increased earnings, an important attraction for long-term holders of Lloyds shares is the banks progressive dividend policy.
Lloyds paid a dividend of 2p for 2021 which would equate to a 4.4% yield with Lloyds share price at 45p.
Given Lloyds are once more embarking on a progressive dividend policy as the impact of the pandemic diminishes, buyers at 45p will likely see their yield increase as dividend payouts rise.
Lloyds Shares Valuation
With a Lloyds share price of 45p, the bank is trading at just 5.9x historical earning and 7.1x forward earnings.
Although UK banks are increasingly valued on their price-to-book multiples, the potential for Lloyds PE Ratio to move back inline with historical averages suggests Lloyds shares have plenty of upside.
