Home Share Market Down 4%, will the Lloyds share price soar in 2023?

Down 4%, will the Lloyds share price soar in 2023?


pensive bearded business man sitting on chair looking out of the window

Image source: Getty Images

The Lloyds Banking Group (LSE: LLOY) share price has fallen 4% during the last 12 months.

A grim outlook for the UK economy has pulled the FTSE 100 bank lower. But its shares have been supported by a steady rise in British interest rates.

Could Lloyds shares be set for a spectacular recovery in 2023? And should I buy the beaten-down bank for my portfolio?

A grim 2023

Firms involved in financial services are highly sensitive to broader economic conditions. This is why Lloyds is busily stashing money away to cover potential bad loans.

It set aside a higher-than-expected £1.05bn between January and September alone. This caused pre-tax profits to slump by £765m year on year in the period, to £5.2bn.

As thing stand, I’m expecting loan impairments to keep climbing, too. The Bank of England expects Britain’s economy to steadily contract until mid-2024 as the cost-of-living crisis continues and tax rises come into effect. This is also likely to put extreme stress on the banks’ revenue performances.

Should I invest?

I’m not convinced, then, that Lloyds’ share price will roar back into life in 2023. But this doesn’t necessarily mean I wouldn’t buy the company for my Stocks and Shares ISA.

This is because I purchase shares with a long-term view in mind. In other words, if I think a stock will deliver decent returns over the following decade I’ll snap it up.

I like retail banking banks like Lloyds during normal times. Almost all of us need a bank account, a mortgage, or a credit card at some point. So such companies can be relied upon to deliver decent profits and to consequently pay out big dividends.

Risky business

But businesses like this face a period of weak earnings growth beyond the near term. This is because pandemic- and Brexit-related hangovers are likely to constrain UK economic growth for years to come.

At the same time, interest rates will likely have to remain low to help stimulate a weak domestic economy. This will dampen the profits banks can make on their lending activities.

Lloyds is also at risk from increasing competition from challenger banks. Some 43 more of these were launched globally in 2022, with numbers continuing to grow strongly in Britain thanks to regulatory changes.

An investor trap?

Stock market volatility means a lot of FTSE 100 shares carry ultra-cheap valuations today. This gives extra scope for impressive share price gains over the long term.

Lloyds shares are certainly popular with UK value investors today. For 2023 the Black Horse Bank trades on a forward price-to-earnings (P/E) ratio of just 6.4 times.

It also offers market-beating dividend yields. At 5.4% the bank comfortably beats the FTSE 100 index average of 3.8%.

But I’m not tempted to buy Lloyds shares today. I think its cheap share price reflects the prospects of prolonged weak profits growth amid rising competition and worsening economic conditions. For this reason I’d rather buy other UK shares for next year.





Source link

RELATED ARTICLES

Business News LIVE Today: Latest Business News, Share Market News, Economy & Finance News | Moneycontrol

By Market Capitalisation. Net Sales. Net Profit. Total Assets. Excise. Other Income. Raw Materials. Power & Fuel. Employee Cost. PBDIT. Interest. Tax. EPS. Investments. Sundry Debtors. Cash/Bank. Inventory. Debt. Contingent Liabilities. Screen Crit Abrasives Aerospace & Defence Agriculture Air Conditioners Airlines Aluminium & Aluminium Products Amusement Parks/Recreation/Club Aquaculture Auto Ancillaries Auto Ancillaries -...

Up 50% in 2 months, are abrdn shares a no-brainer buy?

abrdn (LSE: ABDN) shares plunged in 2022, losing around 40% of their value at one point. But in the past two months,...

Taiwan seeks to reassure on TSMC commitment to island despite U.S. investment By Reuters

© Reuters. FILE PHOTO: The logo of Taiwan Semiconductor Manufacturing Co (TSMC) is pictured at its headquarters, in Hsinchu, Taiwan, January 19, 2021....

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Khashoggi killing: US federal court dismisses lawsuit against Saudi Arabia prince Mohammed bin Salman

Washington: A US judge, on Tuesday (local time) dismissed the lawsuit against Saudi Arabia`s crown prince Mohammed bin Salman over the killing of...

Report: FTX Co-Founder SBF Retains White-Collar Lawyer Who Represented Ghislaine Maxwell – Bitcoin News

On Dec. 6, 2022, the former FTX CEO Sam Bankman-Fried (SBF) reportedly retained the attorney Mark Cohen, the lawyer that represented Ghislaine Maxwell...

Meta expected to face new fines after EU privacy ruling

A file photo of The Meta logo on smartphone in front of logo of Facebook, Messenger, Instagram, WhatsApp, Oculus. | Photo Credit: Reuters Meta...

Dana White called Cameron Saaiman ‘the future,’ and he wants to prove it at UFC 282

Dubbed by UFC president Dana White as "the future" of the sport, 21-year-old Cameron Saaiman (6-0-0) is on a mission to prove him...

Recent Comments