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
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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.

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James Gard  is content editor for Morningstar.co.uk