Mostly deliberately, I haven’t owned shares in big UK banks since the global financial crisis of 2007-09. Back then, several British banks nearly collapsed, only avoiding oblivion thanks to enormous taxpayer bailouts. However, I’ve kept a close eye on bank stocks in 2021-22, looking for an entry point into, for example, Lloyds Banking Group (LSE: LLOY) shares.
After at least 18 months of watching Lloyds shares oscillate wildly, we finally took the plunge. On 29 June, my wife bought shares in the Black Horse bank at an all-in price (including stamp duty and dealing charges) of 43.46p. Immediately, the stock started to decline, falling steadily until it hit a post-buy low of 40.89p on 15 July, down 5.9% in 16 days. Oopsy daisy.
Lloyds shares bounced back this week
In a bullish (positive) week for global stock markets, Lloyds shares have staged a comeback. As I write late on Friday afternoon, the share price stands at 43.3p, a whisker below our buy price. Here’s how the stock has performed over seven different time scales:
| One day | -0.1% |
| Five days | 0.6% |
| One month | 2.3% |
| Six months | -12.2% |
| 2022 to date | -9.6% |
| One year | -5.7% |
| Five years | -34.9% |
As you can see, the Lloyds share price has bobbled about, registering modest declines over five time periods ranging from one day to one year. However, over five years, it has been a big disappointment, losing almost 35% — more than a third of its value — since mid-2017.
Furthermore, this stock is down more than a quarter (-22.7%) since hitting its 52-week high of 56p on 17 January 2022. In other words, it’s not been a great calendar year so far for long-suffering Lloyds shareholders.
This FTSE 100 share still looks cheap to me
After its 2022 declines, here’s how Lloyds’ share fundamentals stack up today:
| Share price | 43.3p |
| 52-week high | 56p |
| 52-week low | 38.1p |
| 12-month change | -5.7% |
| Market value | £29.6bn |
| Price-to-earnings ratio | 5.8 |
| Earnings yield | 17.3% |
| Dividend yield | 4.6% |
| Dividend cover | 3.7 |
Right now, Lloyds shares trade on a lowly price-to-earnings ratio of 5.8, which translates into a healthy earnings yield of 17.3%. However, these are trailing (backward-looking) figures — and the UK’s economic outlook looks uncertain, at best. I worry about red-hot inflation (soaring consumer prices, especially for oil and fuel), rising interest rates, a global economic slowdown or recession, and the war for Ukraine. Hence, I’m fully expecting Lloyds’ profits, earnings, and cash flow to slide in 2022-23.
Despite my pessimism, I have to put my spare cash to work. Otherwise, its value gets eaten away by UK Consumer Price Inflation (CPI) running at 9.4% in the 12 months to June 2022. And right now, Lloyds shares look undervalued to me, even if bad debts and loan losses do start to rise.
Is Lloyds a value trap?
Lastly, I also like the look of Lloyds’ dividend yield, which comes to 4.6% a year, covered 3.7 times by (trailing) earnings. This looks very solid to me — and may offer scope for future uplifts.
To answer my title’s question: is Lloyds a value trap? I honestly can’t say — please ask me again in five or 10 years. But a leading British retail bank with 30m customers is valued at less than £30bn today, so I’d happily buy shares at this price!
