Can Lloyds shares really get any cheaper now?

Young female business analyst looking at a graph chart while working from home

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When the Barclays boss raised new mortgage fears this week, Lloyds Banking Group (LSE: LLOY) shares didn’t actually budge.

Barclays’ chief govt CS Venkatakrishnan spoke of an enormous revenue shock when debtors attain the tip of their fixed-term offers.

Lloyds is the UK’s largest mortgage lender, in order that’s bought to harm, proper? The truth that nothing a lot occurred to the value makes me suppose they actually might need hit all-time low.

As the folks who pay an excessive amount of consideration to share value charts say, perhaps Lloyds shares have sturdy assist.

Previous the underside?

I see good causes to suppose so, and never simply wanting on the chart.

Forecasts put Lloyds shares on a price-to-earnings (P/E) ratio of solely 6.4, with a dividend yield of 5%. Different issues equal, that appears tremendous low cost.

It makes me consider one thing billionaire investor Warren Buffett as soon as stated:

It’s much better to purchase an exquisite firm at a good value than a good firm at an exquisite value.

Would he suppose Lloyds is an excellent firm, and may he purchase? Properly, he’s invested closely in financial institution shares through the years.

Tremendous returns

Along with insurance coverage and different financials, they’ve helped him to a median annual return of 20% since 1965. What about Lloyds? I don’t know, however I can’t assist pondering he may prefer it.

And isn’t it even higher to purchase an exquisite firm at a knock-down, super-cheap, no-brainer, fantastic value?

I’m begging the query right here a bit. The massive Metropolis traders clearly don’t see the Lloyds share value as all that fantastic. In the event that they did, they’d have piled in and pushed it a lot greater.

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First quarter

How fantastic may Lloyds be? In Q1 this 12 months, revenue earlier than tax reached £2,068m. That’s £611m greater than the identical quarter final 12 months.

Internet curiosity revenue reached £3,542m, up 21%. So excessive rate of interest margins are serving to offset stress on mortgage demand. There’s a danger that the steadiness may shift the incorrect method although.

However proper now, it appears to be giving Lloyds a little bit of a security buffer.

Liquidity appears fantastic

The steadiness sheet appeared sturdy too, with whole belongings up £740m in comparison with December 2022. Complete liabilities had been down £2.6bn.

And the financial institution’s CET1 ratio is on the up, from 14.8% in December to fifteen% by March. That offers a deal with on how a lot of its fairness could be shortly transformed to prepared money.

Liquidity like that, regulated by the PRA, helps defend UK banks from the falls we’ve see over within the US. And I see that as one further little bit of security.

Additional falls?

It appears nearly sure that the Financial institution of England will elevate rates of interest additional. In reality, some suppose they may exceed 5% earlier than they begin to cool. And that should add danger for Lloyds’ mortgage enterprise. It would upset the steadiness.

So I feel Lloyds shares may get even cheaper this 12 months.

However you understand who thinks they’re good to purchase now? Sure, Lloyds itself, snapping them up as a part of a share buyback.

I agree, and I need to purchase extra.

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