So far, 2023 has done little for the Lloyds share price. Very little indeed.
The shares have moved up less than 1% since the start of the year. On a five-year perspective, they are down 8%.
That is not the full picture. The shares do at least currently have a juicy 5.3% dividend yield. Still, both the share price and dividend per share are lower than they were five years ago.
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Yet the bank is massively profitable and remains a leading player in the UK banking market with many millions of customers.
Could that suggest that Lloyds shares might start to recover in 2024? If not to their 1999 level of around a fiver per share, at least to the more recent 2015 Lloyds share price of over 80p?
What a recovery might take
In short, I doubt it.
Lloyds’ business has performed strongly in recent years despite a tough environment. Last year, for example, it made a post-tax profit of £5.5bn. That is a lot for a company that currently has a market capitalisation less than six times that amount.
Many investors prefer to value bank shares using price-to-book value rather than price-to-earnings ratios, but the Lloyds share price looks cheap using either metric right now.
Despite that, the price has shown a sizeable long-term decline. Even at what seems like a bargain price, the firm does not seem to create widespread investor enthusiasm.
Perhaps investors simply do not like Lloyds, for example because of its long-term value destruction or its slowness in restoring the dividend to its pre-pandemic level (something that it has still not achieved).
Or maybe the lacklustre price is more reflective of fundamentals. Although earnings are strong, the risk of rising defaults eating into profitability is a real concern.
For the Lloyds share price to recover strongly in 2024 I believe either investor excitement about the bank needs to grow considerably or the business needs to demonstrate that its underlying performance is strong.
But I reckon that both those things are likely to be affected by wider economic performance, which is outside the bank’s control.
No rush to buy
So although the price could move up strongly next year, I do not currently expect it to happen unless the economy improves significantly.
As a long-term investor, though, I might say, “so what?” Lloyds is a massive and highly profitable bank trading at what seems like a cheap valuation. I could buy while the Lloyds share price remains in pennies and hold for the long term, potentially getting paid a 5% yield for my patience.
But there have been other moments in the past when Lloyds shares looked cheap – only to fall further. I think the risk of an economic slowdown hurting profits at British banks including Lloyds in 2024 is a significant one.
I am in no rush to invest in the banking sector and prefer to see first how the wider economy performs. I may buy Lloyds shares again at some point in future – but not any time soon.
