At the time of writing on 10 January, Lloyds (LSE:LLOY) shares are changing hands for just 47.4p. That’s down from highs above £5 decades ago.
However, the stock hasn’t traded in triple figures — and by that I mean 100p or above — in over 10 years.
So, could Lloyds shares really reach 100p in 2024? Let’s explore.
What’s holding the stock back?
Lloyds, along with other UK-focused banks, delivered strong earnings over the past two years, but the share prices haven’t reflected this. Why is that?
While the coffers burgeoned, the UK’s sluggish economic engine throws a shadow over Lloyds and its peers.
With loan demand stuttering and the future shrouded in Brexit-induced uncertainty, investors have kept their powder dry.
Moreover, let’s not forget the general gloominess surrounding UK stocks, with factors like market pessimism and rising yields dragging everyone down, banks included.
Even beyond broader concerns, the banking sector itself faces hurdles. Rising interest rates, while good for net interest margins initially, can eventually lead to mass credit defaults.
On top of that, the rise of nimble fintechs and challenger banks is nibbling at existing banks’ market share and profit margins, adding to the uncertainty.
Are there any positives?
Investors are always a little cautious when it comes to banks, with the 2008 crash still fairly fresh to some.
As such, I think several positives have been overlooked, especially with Lloyds. The bank’s earnings have been remarkable, and impairment charges lower than expected.
One of the reasons for this is Lloyds’s dominance in the mortgage sector, and the fact that it’s average mortgage customer has an income of £75,000 — insulating them somewhat from economic pressures.
And while more Britons will see their low fixed-rate mortgages turned into higher (probably variable) rate mortgages this year, there’s no sign of a slew of defaults that would constitute a worst-case scenario.
Moreover, banks have hedging strategies that allow them to prolong the positive impact of higher interest rates. Of course, fixed-term mortgages are part of the mix, but banks will also be buying up government debt with high yields.
So, actually, there are plenty of positives. And these contribute to a favourable earnings growth outlook.
In fact, Lloyds’s earnings per share (EPS) are expected to growth at 9.1% — representing a small premium to the sector — over the next three-five years.
Valuation
As I mentioned above, Lloyds has some of the most attractive quantitive valuation metrics on the FTSE 350. And, when it comes down to it, quantitive analysis often puts us in the right direction.
| Lloyds | Discount to sector | |
| Price-to-earnings (trailing 12 months) | 5 | 52.6% |
| Price-to-earnings forward | 6 | 45.3% |
| Price-to-earnings growth (trailing 12 months) | 0.03 | 92.3% |
| Price-to-earnings growth forward | 0.61 | 58.3% |
| Price-to-book | 1.08 | 9.1% |
For me, the most important metric is the forward price-to-earnings growth (PEG). This is calculated by dividing the price-to-earnings ratio by the CAGR growth rate (9.1%).
What this data tells us is that Lloyds could be trading much higher. In fact, taking into account this 58.3% discount on the PEG ratio, it could be trading in triple figures.
Is it likely? Well, the metrics don’t lie. Lloyds could be the Rolls-Royce of 2024.
