This TabStocks article takes an in-depth look at the Lloyds Banking Group and asks: Should you buy shares in LLOY in 2022?
Stock Name and Trading Stock Exchange Platform
Lloyds Banking Group PLC – London Stock Exchange (LSE: $LLOY.LON)
– NYSE: $LYG
The Stock Sector
Lloyds Banking Group is a British financial services firm. LLOY is considered one of the big four banks in the UK.
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It was founded in 1756 in Birmingham and later restructured in 2009 through the acquisition of HBOS by Lloyds TBS.
Lloyds operates through the following segments: Retail, Commercial banking and Insurance and wealth.
Under the arm of international trade, Lloyds facilitates the exchange of foreign currency exchange, managing risk and offering flexibility to traders.
The company does this through forward contracts and time options, together with limit and FX options. It employs over 45,000 people and is headquartered in London, UK.
Recent News on Lloyds Banking Group
The English bank is experiencing very troublesome times with several of its branches shutting down across the UK.
Lloyds is reported to be closing 28 branches, 20 Lloyds and 8 Halifax. The cause of the shut-down has been pointed to a drastic reduction in users.
The banks workers were in protests two weeks ago during their annual meeting.
Members of the union have expressed grief of being underpaid with the bank making ‘obscene amounts of money yearly’.
Lloyds Banking Group is still very resilient and trust they can weather the headwinds.
Nothing proved this better than when they rallied yesterday following a strategic buy-back program of about 28.6M shares.
They also reported their earnings at end of April 2022, their numbers were modest, with gains surpassing estimate. Rising interest rates is believed to have propelled this performance.
Lloyds has backed a sustainable housing developer with its biggest loan ever. A giant sum of £235M which will be utilized for affordable housing and de-carbonization.
Lloyds Banking Group are also set to redeem 100% of its 1.326% senior callable fixed to fixed rate notes due 2023. This notes will also be cancelled on the NYSE.
The company has fully geared towards eco-friendliness, evidenced by the new hiring of Rebecca Heaton as the director of environmental Sustainability.
Geopolitical tensions have cause a ripple effect affecting the performance of the bank.
Current Position of Lloyds Banking Group
The company has a market capitalization of 30.76GBP. This is pretty huge, but is still considered a penny stock. This is because it still trades at 44p.
It has been around for centuries and its share price is quite shocking, but not uncommon. There are dozens of similar large companies that trade as penny stocks.
This was caused by the company crashing in the financial crisis losing most of its value.
It has since not recovered. At the height of financial crisis, UK Prime Minister, Gordon Brown instructed the treasury to invest $67B into major banks like Royal Bank of Scotland, HBOS and Lloyds TSB to prevent a financial collapse.
This was essentially a bailout during the financial sector being in turmoil throughout the world. Many felt sour as the banks prospered after this, while unemployment was rampant.
The foreign exchange division is officially stated to facilitate risk-averse exchange.
Their forward contracts allow you to buy and sell currencies in advance, at fixed exchange rates, so you can secure the value of future transactions.
FX Time options are just like Forward contracts, but rather than settling on one specific date in the future.
To give flexibility, you can specify a start date and an end date for the contract and you can draw down against that contract anytime within the two dates.
Lloyds foreign exchange and money market platform offers economic updates and tools to ensure viable trades are achieved.
For eligibility into this platform one needs to have a projected annual foreign turnover of over £750,000.
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A well-known fact is that these institutions play by a different set of rules in the market.
The banks look at the market from consumer/retailer interest. Say, market is in an uptrend and the sellers are getting ready to capitalize.
The banks are apex predators that want to manipulate the market in order to make gains. The banks are the supply chain shoppers that take advantage of an arbitrage opportunity.
They change the market perspective by via a move known as a stop hunt, which when the banks corner the market to reaching the common area where people stop losses are.
Retailers end up buying before when the market is at the top which eventually comes down.
The banks will conversely sell at this position at high prices due to incoming capital pumping the market.
Other tricks up their sleeves include, mitigation, stop orders and more. Currently all the markets are in bear territory. Experts suggests that we are in the initial phase of a recession.
The dollar has gained strength, as interest rates increase. This is because the dollar is the reserve currency of the worlds and has way less quantitative easing than Europe or Asia.
If other countries keep their interest rates low and print more money, the greenback could remain king for a long time.
The banks are in a tight position as they face the threat of incumbency by block chain solution seeking to eliminate them as middle men.
The fiat reserve currency is also not trusted by investors.
Lloyds has actively been getting into property contracts as they see it as a hard asset and hedge against an economic crisis.
Lloyd Banking Group Stock Price Chart
As of 24 May 2022, the stock is trading at GBX 44, down by -1.09% from the previous day close.
Lloyds shares traded at a day range of GBX 43.72- GBX 44.57. Lloyds shares has seen a week high of GBX 56 and a low of GBX 0.59. The volume of traded shares is 236.01M.
The P/E ratio is 5.89, which is pretty sound suggesting they are at a fair value. LLOY shares are undervalued and below its all-time highs.
This is has made a Lloyds investment very attractive despite the stock crashing over the decade.
Shareholders prefer core generation activity as opposed to the stock swings. The stock recorded its all-time high of $44 two decades ago in May 6th 2002.
Sentiment on Lloyds Banking Group
Despite the Lloyds share price underperforming this year, there’s a lot of positive outlook on the stock. It is seen as cheap with good value.
Lloyds Banking Group is also a remarkable prospect being the largest mortgage lender in the UK.
Lloyds has taken precautionary measures to insure itself against the wild inflationary market, setting aside £177M to protect against potential defaults.
The recent increment in quarterly earnings has convinced many investors of what it can do in the coming year. The housing market is a long-term play that will do well despite now being overvalued.
The rising cost of living and inflation have been a bummer for the company. They are however intrigued by the hike in interest rates which will bring in higher margins for them as lenders.
And their traditional assets like bonds could do well, especially treasury bonds.
On the other hand, high interest rates could discourage borrowing activity which will translate to less volume of deals for the banks.
A currency collapse is not out of question.
Profits for Lloyds Banking Group
Lloyds Banking Group posted remarkable profits for the quarter last month. Pretax profits were at £1.6B which beat the analyst expectation of £1.4B, despite falling from last year’s £1.9.
The decline was due to impairment charges. The single factor that can be argued to keep investors hooked on this stock is dividends. It paid out 4.53% yields last year to shareholders.
Revenue over the year did go down by -6.3% recorded at £3.96B. Net income similarly declined by -14.76% coming in at £1.18B.
The net profit margin was at 29.27%, down by -8.9% over the year. Operating income went down by -14.49%, posted at £1.62B. Cash and equivalents were at £101.01B.
Lloyds Banking Group is very rich, which could be very beneficial in a deflationary market, many investors believe is coming. The debt to equity ratio is 2.9 which is a bit high, but they have the benefit of government stimulus.
Future of Lloyds Banking Group
What lies ahead for banks is uncertain given the disruption in the sphere of finance. Almost all the banks are hiring a head of innovation to steer them on the path to trend.
Decentralized financed threatens their very existence, but rather than fight it, they seem to have decided to join them.
Lloyds is intertwined into the lifeline of not only the UK economy, but the globe as a whole.
Regulators and central bankers support these banks and have shown that they are too big to fail.
The will definitely do well long-term and survive global meltdowns.
Overall Verdict on Lloyds Banking Group
The Lloyds Banking Group has a lot of leverage and could manoeuvre through the worst of times. It is bullish in the medium to long-term even though its bearish at the moment.
Moving averages indicate a strong sell, while oscillators are neutral. The company could soon dump the penny stock status and regain its former glory.
Lloyds Banking Group is a cheap absolute buy that should be considered in one’s portfolio.
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