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Lloyds Banking Group's shares underperform amid global financial turmoil, eyes recovery in 2024

EditorHari Govind
Published 2023/11/01, 11:34
© Reuters.

Lloyds Banking Group (LON:LLOY), also known as the Black Horse bank, has been grappling with a consistent underperformance against the FTSE 100 index. The bank's shares have dropped nearly a tenth within a month and have lost nearly a third of their value over half a decade. This decline was further exacerbated by a crisis at mid-sized US banks, which triggered a worldwide plunge in financial shares. Consequently, Lloyds' shares closed at 39.76p on October 27th, just above its 52-week low and valuing the bank at £25.4bn.

Despite these challenges, Lloyds managed to surpass analysts' third-quarter profit forecasts due to lower loan losses. The latest bad debt impairment charge witnessed a significant drop to £187mn from £668mn in Q3 2022. However, the bank warned that the income boost from higher interest rates was fading, with its net interest margin slipping to 3.08%.

Despite consumers grappling with stubborn inflation and sky-high energy bills, Lloyds reported a Q3 pre-tax profit of £1.9bn, thereby beating estimates. This performance is indicative of the bank's resilience amidst economic headwinds. The bank's shares offer a dividend yield of 6.3% and an earnings yield of 17.9%, indicating significant undervaluation with a price/book ratio of 0.51 and shares trading at a multiple of 5.6 times earnings.

Looking ahead, Lloyds holds £2.5bn of spare capital and is considering higher cash dividends and more share buybacks in 2024 as potential avenues for recovery. Despite the current underperformance, these factors offer some signs of potential recovery for the UK's largest lender in the coming year.

InvestingPro Insights

Drawing from real-time data from InvestingPro, Lloyds Banking (NYSE:LYG) Group has a market capitalization of $30,400.85M USD, and is trading at a low earnings multiple with a P/E Ratio of 4.05. The bank has seen an impressive revenue growth of 38.49% over the last twelve months as of Q3 2023.

Two key InvestingPro Tips that align with the article's content are the bank's consistent dividend growth and its significant dividend payout to shareholders. LLOY has raised its dividend for three consecutive years, with a dividend yield of 6.31% as of 2023. This aligns with the bank's consideration of higher cash dividends mentioned in the article. Additionally, despite trading near its 52-week low, LLOY remains a prominent player in the banking industry and has remained profitable over the last twelve months.

For more insights like these and other valuable tips, consider exploring InvestingPro's comprehensive offering. With a total of nine additional tips available for LLOY, InvestingPro provides data-driven insights to aid your investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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