Last Thursday, Russia launched its widely anticipated invasion of Ukraine. As a result, share prices around the world initially swooned. On Thursday, The FTSE 100 index tumbled by 291.17 points, shedding 3.9% of its value. At first, the S&P 500 index opened sharply down, but then a swarm of buyers raced to buy the dip. By Thursday’s close, the S&P 500 had actually gained 1.5%. Global stock markets surged again on Friday, as fears of a wider European conflict receded. For the week, the FTSE 100 was down 0.3%, while the main US market index was unchanged.
But investors are people and they still worry about the fate of Ukraine and its 44m people. This partly explains why some share prices stayed low and why the Lloyds Banking Group (LSE: LLOY) share price stumbled last week.
The Lloyds share price dives, then rebounds
On 17 January, the shares hit their 2022 high of 56p, before closing at 55.13p. On Wednesday, just before war broke out in eastern Europe, the Lloyds share price closed at 52.2p. As battle raged on Thursday, Lloyds shares hit a low of 46p, before recovering slightly to close at 46.54p. That’s a one-day plunge of more than 10%, making Lloyds one of the FTSE 100’s worst flops on Thursday. For the record, I’d have been delighted to buy at 46p-47p on Thursday, but I was unavailable to buy that day. On Friday, Lloyds shares surged with the wider market, closing at 49.68p, and up 3.14p (6.7%) in this rebound rally.
I think Lloyds is too cheap today
With the Lloyds share price closing at 49.68p on Friday, the Black Horse bank is valued at £35.3bn. For me, this is a modest price tag for a leading British retail bank with around 26m customers and 58,000 staff. Lloyds is the UK’s #1 mortgage lender, thanks to its ownership of leading brands including Lloyds Bank, Halifax, Bank of Scotland and Birmingham Midshires. It’s also a leading provider of credit to British businesses and consumers.
However, this means Lloyds is heavily exposed to both house prices and consumer credit. While property values soared in 2021, analysts expect them to rise more slowly this year. Then again, if Covid-19 recedes, rising public confidence could boost growth in consumer credit. For me, Lloyds holds a mirror up to the entire UK. If our economy does well, then Lloyds and its profitability should follow suit. However, if new, deadlier variants of coronavirus do emerge, then this could batter the group again — as happened in 2020. At its 2020 low, the Lloyds share price collapsed to 23.58p, before soaring.
Right now, I see it as an attractively priced play on a continued economic recovery from Covid-19. At the current Lloyds share price, it trades on a modest price-to-earnings ratio of 6.7 and an earnings yield of 15%. This covers the current dividend yield of 4% a year almost four times over. I regard these as undemanding fundamentals, given Lloyds’ potential as a play on continued UK economic recovery. That’s why my family portfolio will soon own Lloyds shares again — for the first time in perhaps 15 years!
