Will the Lloyds share price crash in 2023?

It is unthinkable for anter Lloyds Banking Group (LSE: LLOY) share price is stuck, isn’t it? As a shareholder, I doubt that will happen. But before explaining the optimism, there are always some risks.

At FTSE 100 may have gained strength, briefly break above 8,000 points. But Lloyds’ share price seems less bullish.

It might be nice to see it above 50p, but that’s about all I can say. Lloyds shares are up just 4.5% over the past 12 months. And we are still below the January 2022 peak.

Margin loan

Investors expect interest rate hikes to make a difference to bank profits. After all, they have to raise the loan margin.

With bank report season here, we’ve already seen a few of these. But this was not as big a boost as some observers had hoped. And bank stocks in general have been bearish for several weeks.

Lloyds’ FY22 results look pretty good to me. Profits were flat. But there is enough cash for the bank to lift its dividend by 20% to 2.4p per share. That’s ahead of inflation, even the current high inflation.

Lloyds will buy back up to £2bn of its own shares, showing confidence in its ability to generate cash.

Not impressed

Why aren’t the markets impressed with Lloyds’ latest figures? There is a lot of concern about interest rates. Will he stand higher than he feared? This is one of the thoughts emerging from the US today.

And the property squeeze is not good news for the UK’s biggest mortgage lender. Higher loan margins can be quickly offset by reduced delinquencies and mortgage defaults.

Certain fears for Lloyds could send the stock down again in 2023. And global uncertainty is causing fresh bearish gloom to drop again.

Don’t panic

So why don’t I panic and sell? It’s all about value, and about Lloyds’ guidance for the next few years.

Firstly, the dividend yields 4.6% of Lloyds’ current share price. And the latest statement says the bank “will maintain a progressive and sustainable regular dividend policy“.

Operating costs, interest margins, return on equity, asset quality… Lloyds guidance for various measures looks good, up to 2026 in some cases.

Investors may not read too much into companies extolling their own virtues. So yes, we have to be careful.

Cheap?

But basically for me it’s all about basic value. We’re looking at a trailing price-to-earnings (P/E) of 7.4, about half that of the FTSE 100. Forecasts point to lower stocks on that measure over the next few years.

Analysts also hope to see the dividend yield reach 6%, which I am very happy for the pocket.

In short, I see the risk. And I rate the possibility of weakness in the stock price this year as a form. But I think the fundamental value is very low giving a margin of safety more than enough to cover the downside.

And if Lloyds shares fall too much, it could be a better buy.