I’ve watched the Lloyds Banking Group (LSE: LLOY) share price for years now. For most of that time, the stock’s simply looked too cheap. And I’ve kept asking myself what’s the market waiting for?
Seeing hints of sustained growth in 2024, I’m asking the same again. And right now, I think the answer might be simple. All it might take for the starting gun to fire is an interest rate cut from the Bank of England.
A new false start?
Lloyds shares are up 32% since February’s low, passing a new 52-week high. But they’ve looked good a few times before, and turned back. I reckon it’s too early to confidently call the start of a much-awaited recovery yet.
But I see increasing signs that investors are gearing up to get back into bank stocks again. One is the NatWest Group share price.
In the same time as Lloyds’ 32% climb, NatWest shares have soared by 57%. And since November 2023, we’re looking at a gain of more than 80%.
The government’s stake seems to have been putting the brakes on the NatWest share price. And it could well have been holding back Lloyds and the rest of the sector. Barclays is on the way up now too.
Book value
The UK’s bank stocks are currently trading below book value. That means the total value of the shares adds up to less than the value of the assets on the books. Effectively, it could suggest the business itself is worth less than zero.
In Lloyds’ case, we see a price to book value (PBV) ratio of 0.8 times. That could mean the market doesn’t trust what it says on the balance sheet. Book values usually have to be estimated, and might not accurately reflect what the assets might fetch if sold off.
On the other hand, investors might just not see a good enough return on those assets to make the shares worth buying.
The dividend
That’s a cause for concern. But then I look at dividend forecasts, which have the yield reaching above 6.5% by 2026. It would bs supported by rising earnings per share (EPS) from 2025 onwards. But before that, there’s a 23% EPS drop on the cards for this year.
So maybe the big investors want to get 2024 out of the way and need to see evidence of a return to earnings growth. And maybe they’ll wait to see the balance sheet boosted and core return measures improve. So perhaps a simple interest rate cut won’t be enough.
Take it easy?
But as private investors, do we need to think that deeply? I say there’s a good argument for just taking the dividend, providing we’re confident it will be maintained. And not fretting too much about low share price valuations.
And if the Lloyds share price stays low, I expect I’ll just buy some more.
