Why Are Lloyds Shares Cheap?

VIDEO: The latest in our video series looks at Lloyds Banking Group, which has just restarted dividends

James Gard 16 August, 2021 | 9:36AM
Facebook Twitter LinkedIn

 

 

James Gard: Each week we look at one stock that is cheap or expensive and why. This week is the turn of Lloyds Banking Group, which owns Halifax, Bank of Scotland and pension provider Scottish Widows. Lloyds shares slumped in 2020 as investors feared that the bank would be hit hard in U.K. recession. Along with other banks in the U.K. sector, Lloyds was prevented from paying dividends by the regulator. But Lloyds has just announced that it will resume dividend payments this year, although at lower levels than in 2019.

Life is looking much brighter for banks this year. Mortgage lending is at record levels and consumers are splashing out on credit cards and using overdrafts, now the economy is opening up. Why do Morningstar analysts think Lloyd's shares are cheap? They have risen around 30% so far this year, but it's still below their pre-pandemic levels. Lloyds, as a pure play in the U.K. economy can benefit from the recovery and growth. The bank's balance sheet is also stronger than its rivals. We assign a 62p per share fair value to Lloyd shares, but they are trading around 46p.

For Morningstar I'm James Gard.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

James Gard  is content editor for Morningstar.co.uk