Lloyds Bank (LON:LLOY) has rallied from lows of 62p in September to break above 70p in recent trading sessions. Given the recent rally, we look at the key features to consider when asking: is Lloyds Bank a buy?
A key factor likely to dictate Lloyds share price in the coming month is unfortunately out of the hands of the Lloyd’s board in the ongoing Brexit negotiations.
Lloyds profitability is inextricability linked to the health of the UK economy and if we see a deterioration in UK economic readings, it is likely to have a follow through to the revenue and profit of Lloyds.
Valuation
Lloyds’ current historical PE Ratio is 20.8 which suggests the shares are expensive compared to the FTSE 100 average. However, one must consider the one-off charges Lloyds has suffered over the last financial year.
Stripping out the one-off charges, Lloyds’ PE Ratio would be closer to 12x earnings, a valuation that can be considered cheap in comparison to the wider market.
In addition, if Lloyds’ revenue increases and helps the bottom line expand, this will also drive down the valuation on an earnings basis.
Lloyds’ profit
In the nine months to September 30th, Lloyds’ profit grew 8% while net interest margin grew to 2.85%.
Given the current resilience of the UK economy, which enjoyed 0.4% growth in the last quarter, one could consider the threat of a recession induce fall in Lloyd’s profit some way off.
Lloyd’s acquisition of MBNA will also provide the potential of further growth in 2018 as the credit card business benefits from an increased credit card spending by UK consumers.
Commenting on the strategy of Lloyds progress in a recent trading statement, CEO António Horta-Osório said:
“We continue to focus on supporting people, businesses and communities, as set out in our Helping Britain Prosper Plan while making good progress against our strategic priorities of creating the best customer experience; becoming simpler and more efficient; and delivering sustainable growth. We are ahead of schedule with the integration of MBNA and now expect completion in the first quarter of 2019.”
“We have also recently announced the acquisition of Zurich’s UK workplace pensions and savings business which is in line with the Group’s targeted growth strategy and accelerates the development of our financial planning and retirement business. A new organisational structure has also been implemented ahead of the announcement of our strategic review in February.”