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As we approach the final months of 2024, many investors are closely watching the performance of Lloyds (LSE:LLOY). The bank's share price has been a real success this year, influenced by a number of macroeconomic factors and company-specific developments. Based on current trends and potential catalysts, I believe that Lloyds' share price could end the year around 65p. Here's my reasoning.
Economic recovery
The UK economy has shown resilience in 2024, with inflation gradually cooling and consumer confidence improving. The Bank of England has begun to ease monetary policy and interest rates have started to come back from their highs. This environment bodes well for Lloyds as it could lead to increased lending activity and improved net interest margins.
However, we must remember that economic forecasts can be fickle and any unexpected downturn could put pressure on the bank's performance and share price.
Solid results
The bank's recent financial results have been encouraging. In its last reported results, the bank posted a pre-tax profit of £4.51 billion for the last 12 months. The price-to-earnings ratio of 7.8 times suggests it is still reasonably valued compared to peers and historical averages, although competitors Barclays and Chartered standard Earnings are expected to grow more aggressively in the coming years.
A discounted cash flow (DCF) calculation suggests that the stock is as much as 51% below its estimated fair value. Furthermore, a price-to-book (P/B) ratio of 0.8 suggests that there could be a decent opportunity here. Of course, this is not guaranteed, but it shows the potential if management can continue to execute the strategy well.
Generous dividend
With a dividend yield close to 5%, Lloyds remains a favourite for income-seeking investors. The bank’s payout ratio of 41% indicates there is considerable scope for dividend growth if earnings continue to improve. As interest rates stabilise or steadily decline, dividend-paying companies with high yields could become even more attractive to investors looking for reliable income streams.
Eyes on the future
Management has been investing heavily in digital capabilities, which should start to pay off in terms of improved customer experience and operational efficiency. The focus on streamlining operations and reducing costs could lead to higher profitability, which could drive the stock higher.
As the UK’s largest mortgage lender, the bank’s fortunes are closely tied to the housing market. While higher interest rates have cooled the housing market in 2024, recent signs of recovery and government measures to boost home ownership could provide a significant boost to the mortgage sector.
While I am optimistic, it is essential to acknowledge the risks. A severe economic crisis, geopolitical tensions or unforeseen regulatory changes could negatively impact the bank. As always, the regulatory landscape remains challenging, but the company has demonstrated its ability to navigate these waters effectively.
One to keep in mind
Taking these factors into account, I believe that Lloyds' share price could reach 65p by the end of 2024. This represents a modest but respectable increase from current levels, reflecting both the bank's growth potential and the challenging environment in which it operates.
However, investors should remember that these predictions are inherently uncertain. For me, the company's attractive dividend yield and strong fundamentals make it an interesting prospect for long-term investors. I'll add it to my watchlist for now.
