Now that’s a surprise! The Lloyds share price went up despite disappointing results

The Lloyds Banking Group share price reacted positively to its 2024 results. Initially, our writer struggled to understand why.

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Well, I wasn’t expecting that. The Lloyds Banking Group (LSE:LLOY) share price closed 4.9% higher 20 February, after the bank released its 2024 results.

At one point, its stock was up 7.6%, having set a new 52-week high of 67.6p.

And yet the bank failed to meet analysts’ expectations on a number of key measures. In these circumstances, I’d normally expect the group’s value to go down. Instead, investors collectively decided that its market-cap should be over £1.15bn higher.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

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Lower-than-expected profits

For example, the consensus of analysts was for post-tax earnings of £4.64bn. The bank missed this by £161m (3.5%). Also, at 12.3%, its return on capital employed was 0.3 percentage points lower than forecast.

However, my biggest surprise is that investors appeared to ignore the increase in the amount set aside to cover fines and compensation arising from the Financial Conduct Authority’s (FCA) investigation into the alleged misselling of car finance.

Previously, the bank had estimated that it might have to pay £450m. This has now been increased by a further £700m, to £1.5bn. However, it’s still lower than the £4.2bn (or 6.9p a share) that one analyst reckons it’ll cost.

As events have unfolded, we’ve seen how sensitive the bank’s share price has been to various court judgements, FCA announcements and media reports. With disappointing profits and an increase in the motor finance provision, I was expecting a significant correction in the share price, especially since it’s performed so strongly in recent months.

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Egg on my face

But I was wrong. However, on closer inspection, it’s easy to see why investors reacted so positively. Despite the base rate being cut, it managed to record a net interest margin of 2.95%, which was in line with ‘expert’ predictions.

Also, the bank’s increased its dividend. The payout for 2024 will now be 3.17p. This beat market expectations by 2.6%. Even with the post-results jump in the share price, the stock’s yielding 4.8%. Also, it’s announced another £1.7bn of buybacks.

However, I believe future dividends and share buybacks could come under threat if the motor finance provision has to be increased further. When there’s a need to preserve cash, these are easy targets.

But I think the Lloyds share price isn’t the bargain it once was. It has a price-to-book (PTB) ratio of 0.88. On paper, this suggests the stock’s cheap. However, according to McKinsey & Company, the average PTB ratio of 1,500 listed banks is 0.9, the lowest of all sectors.

And its shares now trade on a multiple of 10.5 times its 2024 earnings. With all of the FTSE 100’s banks now reporting their 2024 results, it’s possible to compile a league table of price-to-earnings (P/E) ratios, and Lloyds is at the bottom.

BankP/E ratio
NatWest Group8.37
Barclays8.44
Standard Chartered8.97
HSBC9.00
Lloyds Banking Group10.53
Source: company annual reports 2024

I believe this reflects the recent share price rally rather than investors rating the bank more highly than the others. Lloyds is almost totally reliant on the domestic economy, and with the UK struggling to grow, I fear the bank’s future earnings may disappoint investors. Also, I’ve no idea what the final bill might be once the FCA completes its investigation.

For these reasons, I’m not going to invest.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has positions in Barclays Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, Lloyds Banking Group Plc, and Standard Chartered Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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