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He Lloyd's (LSE:LLOY) share price has been trading in a tight range between 40p and 50p for almost a year. However, the past month has been particularly good, with the share price up almost 20%.
In the chart below we see that it is once again attempting to secure a decisive break above the key 50p level that supported the price pre-Covid. Similar attempts were made in early 2022 and 2023, but they failed to stay above 50p for long.
Third time lucky?
I'm looking at the various factors that could decide the price direction, including an announced new wave of branch closures and a scandal looming on the horizon.
Damage control?
In the current economic environment, several factors can affect a bank's stock price. Most notable are interest rates, followed by rising cost of living, and mortgage rates combined with increased demand for housing.
By comparison, branch closures are probably the least of their worries. For the most part, the closures are a result of declining foot traffic as new customers increasingly adopt mobile banking.
The interest rate situation remains uncertain, but as long as rates remain high, Lloyd's is benefiting. The extra income means Lloyds has been able to spend £2bn on share buybacks this year, with a further £1.4bn planned.
On paper, this all looks good for the investor, but if you read between the lines, it could be the actions of a bank doing damage control.
Another financial scandal
Lloyds has been identified as a key offender in the recent motor vehicle finance scandal. It became the first bank to publicly announce a compensation package in response to the allegations, to the tune of £450m.
It is too early to know the extent of the scandal. However, people have already started comparing it to the PPI scandal that rocked Britain in the early 2010s. While it may never reach that level, it's hard to ignore the similarities between the two.
Additionally, there have been a number of internal transactions in the last three months. Notably, director of sustainability and corporate affairs, Andrew Walton, recently sold 396,387 shares for a sum of £192,485. However, he reportedly received 3.7 million shares purchased as part of an incentive plan days before the sale, so the sale seems small in comparison.
Decent finances
Looking at its balance sheet and recent profits, Lloyds seems to be doing quite well.
- Independent analysts estimate the shares are 56% undervalued, with an average one-year price target of 59p, up 20% from current levels.
- Last month's results report revealed record pre-tax profits of £7.5bn, an increase of 57%.
- Liabilities are well covered by assets.
- Its reliable dividend with a yield of 5.6% is the icing on the cake
So overall, apart from the car finance scandal, Lloyd's is in a pretty good position. If it was already invested, it would hold for now.
Buy?
Well, I would like to see a sustained move above 50p before making a decision. Yes, I would miss the cheap entry point. But when it comes to my wallet, I tend to err on the side of caution.
