The Lloyds Banking Group (LSE: LLOY) share price has struggled badly so far in June. With British Covid-19 cases back on the rise — and the UK government delaying plans to fully lift lockdown rules — prices of the FTSE 100 stock have unsurprisingly reversed.
At 46.3p per share, the Lloyds share price is currently down 7% month-to-date. Though it’s important to remember the bank is still up a whopping 46% over the past 12 months. Does this recent fall represent a great dip buying opportunity for long-term UK share investors?
Reasons to like Lloyds
I think it’s clear Lloyds’ share price looks mighty attractive at current prices. City analysts see annual earnings rocketing 400% year-on-year in 2021. This leaves the company trading on a bargain-basement forward price-to-earnings (P/E) ratio of below 8 times.
Finally, the number crunchers expect the FTSE 100 firm to supercharge the yearly dividend from 0.57p per share to 2.11p in 2021. Consequently, Lloyds carries a handsome 4.5% dividend yield right now.
3 BIG worries
These numbers are appealing on paper. But to me, they don’t offset the prospect of short-term headwinds and low growth over a longer time horizon. I think the Lloyds share price could struggle from this point on because:
1) The possibility of prolonged Covid-19 restrictions. The share prices of UK-focused stocks across many sectors have taken a whack as the planned exit from restrictions on 21 June was scrapped. And today, a government minister advised it’s unlikely lockdown measures will be rolled back before mid-to-late July. The Delta virus variant is running amok in Britain and I fear this could blow Lloyds’ profits forecasts well off course.
2) Bank of England interest rates remaining ultra-low. Inflation is rising around the world, leading to speculation that central banks could be about to hike interest rates. But I don’t expect the Bank of England to raise its own benchmark within the next couple of years, at least. Firstly, inflation remains far lower than in other parts of the world like in the US. And secondly, key decision-makers at the Bank are convinced this recent inflation jump will prove temporary. I don’t expect interest rates to rise sharply from 2023 onwards either, hampering profits growth at Britain’s banks like they did during the 2010s.
3) Lloyds’ lack of overseas exposure. I’m also concerned that, unlike some of its Footsie rivals like Barclays and HSBC, Lloyds doesn’t operate in high-growth foreign markets. It’s possible the UK economy will enjoy sustained growth once the worst of the pandemic has passed. But it won’t reap the rewards of explosive GDP expansion those other banking stocks might enjoy.
I’m disregarding the cheap Lloyds share price
For these reasons, I’m very happy to ignore the cheap Lloyds share price today. In fact I’d much rather buy FTSE 100-quoted Asia-focused banks HSBC and Standard Chartered instead.
These UK banking shares also trade on rock-bottom forward P/E ratios and carry meaty dividend yields. And they give investors brilliant exposure to fast-growing emerging markets.
