The Lloyds share price is still below 52p. Is this bargain territory?

I followed Lloyds Bank (LSE:LLOY) share price close because I have been a shareholder for several years. It’s a frustrating stock to own because it rarely reaches the heights that analysts (and I) think it should. Still below 52p, Lloyds showing a bargain?

Get results

During the 2022 earnings season for the bank, Lloyds’ share price was slightly lower. previous Barclays kicked off on February 15, Lloyds shares were trading at 53.79p. A week later – on the day that Lloyds released its own results – they closed at 49.72p. Since then they have recovered a little. But it is still 22% lower than five years ago.

To be honest, I was a bit disappointed with the 2022 results. Although net income increased by 14%, from £15.8bn in 2022 to £18.0bn in 2023, profit before tax remained unchanged at £6.9bn. Movement in the provision for bad loans took £1.5bn from last year’s profit. By 2021, the improving situation has led to £1.4bn of credit (income) being booked.

However, the bank remains a huge generative cash. By 2022, £22bn is earned from operating activities.

Looking forward

However, this is all history. What matters is the future.

Lloyds is heavily involved in the UK economy, with almost all of its revenue generated here. Other banks have a more global customer base, located in economies that tend to grow faster. This is one of the reasons why Lloyds is predicting a reduction this year in return on working capital (ROCE).

More positively, the directors have increased the dividend by 20%. The 2022 payout will now be 2.40p per share, giving current yields slightly above FTSE 100 average.

Despite the frustration, I will stick with Lloyds shares. Now it seems that if the UK goes into recession this year, it will be short and shallow. Lloyds then had to start to see the red in the risk of bad debt.

However, the biggest impact on bank profits is the UK base rate.

Interest rates are probably not too far from their peak. The Bank of England’s central forecast is for the base rate to rise to 4.5% in mid-2023, then fall to 3.25% within three years. Lloyds expects the net interest margin (the difference between the interest rate paid on loans and that paid on deposits) to be 3.05% in 2023, from 2.94% in 2022 and 2.54% in 2021.

That’s why I’m looking at the current Lloyds share price.

I think 60p is a realistic short term target. At the end of 2019, long before Covid was discussed and before Russia invaded Ukraine, the share price was 64p. And, at that time, the base rate was only 0.75%!