I’ll start out by saying simply that I reckon Lloyds Banking Group (LSE: LLOY) is at the start of a bull run, and that we shareholders could be in for a happy November and beyond. The Lloyds share price has been ticking up in the last couple of months, and it’s hovering round the 50p level once again. Over the past 12 months, it’s gained around 80%.
I do need to put my thoughts into perspective, though. Firstly, I’ve called bull runs for Lloyds more than once in the past. And more than once I’ve been wrong. And as for the price, well, the 12-month gain is good, but Lloyds shares are still down around 10% in five years.
Why do I think the Lloyds share price will behave differently this time? For one, I reckon economic growth and interest rate rises should be good for the banks in general. And specifically good for Lloyds, with its domestic focus. On budget day last week, we heard that growth is looking stronger than previously expected. Inflation forecasts were reiterated at around 4% by the end of the year. That might give interest rates the kick they need.
Strong Q3 results
There’s been another specific development in the latest week too. On Thursday, Lloyds beat expectations by reporting a pre-tax profit of £2bn in the third quarter. That’s almost twice the figure for the same period last year. For the first nine months, profit came in at £5.9bn.
Some of that is down to the release of funds that had been set aside to cover bad loans. It’s now looking like the provisions made during the worst of the pandemic were more onerous than needed. In total, Lloyds has now enjoyed a net impairment credit of £740m, including £84m in Q3.
Healthy mortgage lending
Mortgage lending is up too, with £15.3bn growth in the bank’s open mortgage book. Of that, £2.7bn came in the third quarter. The stamp duty holiday has since ended though, so I’ll be watching out for the final quarter’s figures.
As a result of this performance, the bank has upped its full-year guidance a little. What was the market’s reaction? It was lukewarm. The Lloyds share price barely moved, gaining just over a penny (compared to Wednesday’s closing price) by the end of the week. So why might the market not share my enthusiasm?
Lloyds share price downside?
Despite the comparatives looking good, last year was a tough year, and that makes things look better. And with the one-off impairment credit boosting the bottom line, we don’t really know yet what kind of sustainable profit Lloyds is now capable of.
Then there’s our uncertain economic outlook. Sure, it looks like we’re in the midst of a strong short-term bounce. But again, we have no idea how representative that might be of the longer term. These things might well conspire to keep the Lloyds share price depressed for some time to come.
And then there’s the uncertain future of the housing market. I still, however, maintain my long-term positive stance on Lloyds, and I’m holding. And who knows — maybe one day I’ll make a bullish prediction that comes off.
