London-listed shares in the Lloyds Banking Group (LLOY) rose in the first half of the year as the UK economic recovery took off. Since June, however, the share price has been under pressure and has fallen from its recent post-pandemic heights.
In this article, we look at the reasons behind the latest price drop and whether the stock’s outlook is likely to improve.
How has the LLOY share price performed so far this year?
The Lloyds share price lost nearly 40% of its value in 2020 as investors fretted that the bank would be hard hit by a recession in the UK. It plunged from around £0.60 before the pandemic to a low of £0.23 in September 2020, but then rebounded up off this level to end 2020 at £0.36. It then further extended its gains to kick off 2021 at £0.37.
The price continued to climb during the first six months of this year as the UK economic recovery kicked in and the housing market boomed. The company’s share price reached a high of £0.50 in early June 2021. However, it wasn’t able to maintain those levels and has since fallen 12% to close the most recent trading session, on 22 September, at £0.44.
That said the share price is still trading up by around 19% since the start of the year.
Strong numbers, dividend reinstated and housing market concerns
In line with its peers, the Lloyds Banking Group posted a strong trading update on 29 July. The company’s first-half results revealed that in the first six months of 2021, it was able to generate underlying profit of £4.07bn, up significantly from a loss of £281 million in the same period last year. Part of the profit was due to the release of £333m set aside to cover potential defaults on loans in 2020. Meanwhile, net income came in at £7.6bn, up 2% on the prior year and 8% on the second half of 2020. The solid results came against a backdrop of a robust economic recovery in the UK.
The strong numbers, in addition to the Bank of England (BoE) ending the pandemic ban on banks paying dividends, allowed Lloyds to pay an interim dividend of £0.67 per share.
Lloyds Bank’s performance is closely tied to the health of the UK economy. The UK economic recovery was impressive during the second quarter of this year. According to the Office of National Statistics (ONS), the nation’s gross domestic product (GDP) increased by 4.8% in the second quarter, a figure still 4.6% lower than at the end of 2019, prior to the Covid-19 pandemic.
However, the pace of the economic recovery slowed in July. According to the ONS, UK economic growth unexpectedly decelerated to just 0.1% month-on-month (MoM), well below the 0.6% level that economists surveyed by Reuters had forecast.
Growth is expected to slow next year. In the latest BoE third-quarter projections, the central bank revealed that it expects GDP to grow by 7.7% over the year but just 4% between the third quarters of 2022 and 2023. If that’s true, Lloyds could hit peak growth this year.
Moreover, the government’s stamp duty holiday is soon to come to an end. The tax holiday, which was supposed to be over by 30 June, was extended from 1 July until 30 September this year. From 1 October, however, rates will return to pre-Covid levels.
This measure has been supporting the UK housing market during the pandemic and was, in part, responsible for a housing market boom in the country. As this support is soon to be withdrawn, concerns over what the impact would be on the housing market and on mortgage demand may have taken the shine off the share price of the UK’s largest mortgage provider – Lloyds.
Where next for the Lloyds share price: the technical picture
The stock rallied to a high of £0.50 per share on 1 June 2021. The price has formed a series of lower highs and lower lows since then, trading within a multi-month descending channel.
The share price is trading below its 50-day simple moving average (SMA). However, the rebound off the 200-day SMA support and the recent advance in the Relative Strength Index (RSI) are keeping buyers optimistic.
Any meaningful breakthrough would need to retake £0.45, the 50-day SMA, the upper band of the falling channel and the September high, which could prove a tough nut to crack. A move above this level could negate the near-term downwards trend, opening the door to £0.48, the July high, and £0.50, the June high.
On the flipside, a break through the 200-day SMA at £0.42 could see the price test £0.40, the lower band of the falling channel. A close below the descending trendline support could spark an extended move lower.
So, will Lloyds shares go up and return to pre-pandemic highs? Let’s check what the analysts have to say.
Lloyds share price forecast 2021-2025: the experts’ view
Despite reporting solid growth and unveiling a dramatic new plan for generating growth, the Lloyds share price has declined. So, what is the view of analysts? Are Lloyds shares a buy or sell?
Last week, analysts at investment bank Deutsche Bank gave Lloyds a buy rating and upgraded the price target to £0.60 from £0.57 previously. Analyst Robert Noble said in a note to clients:
Noble added: “We are positive on domestic exposure but our preference is Lloyds where we are 15% above consensus and it trades at 6.6 times 2023E P/E with 10% yield.”
Analysts at JP Morgan are similarly upbeat with their Lloyds share price outlook after reiterating the overweight rating and hiking the price target to £0.60. Analysts noted: “Despite a weakening mortgage market, Lloyds’ top-line recovery remains on track in our view, driven by the yield curve and consumer recovery.”
Fiona Cincotta, senior market analyst at City Index, also sees more upside for the LLOY share price. In an email to Capital.com, she wrote:
On the other hand, Martin Leitgeb, an analyst at Goldman Sachs, takes a more cautious stance. He downgraded the stock from neutral to sell and slashed the price target by 10% from £0.50 to £0.45. Speaking of Lloyds bank share price predictions, Leitgeb flagged concerns over mortgage pricing, which he believes “is again becoming a headwind... with risks skewed to the downside”.
According to the Financial Times, 19 analysts have issued price targets for the stock over the past 12 months. The average one-year LLOY forecast is £0.53, with the high price target set at £0.64 and the low at £0.42.
Meanwhile, according to algorithm-based prediction website Wallet Investor, the stock is expected to fall over the coming years. Its Lloyds Bank share price prediction suggests the stock will edge lower to end 2021 at £0.41 extending those losses to drop to £0.35 by September 2022.
Over a longer time frame, according to the website’s Lloyds share price prediction, the stock is suggested to end 2022 at £0.34, 2023 at £0.26 and dip lower to just £0.11 by the end of 2025.
Prediction service AI Pickup estimated that the LLOY share price will see lots of volatility ahead, going from an average of £0.60 in 2021 to £0.77 in 2023 and £0.35 in 2024. Averaging £0.67 in 2025, the stock is suggested to fluctuate between a high of £0.92 and a low of £0.35. Looking further ahead, the share price is forecast to average £0.95 in 2030, while hitting a high of £1.06 and bottoming out at £0.55 within a year.
When considering analyst commentary or predictions from algorithm-based forecasting services, it’s important to keep in mind that their predictions may be wrong. You should always do your own research to form a view of the outlook for an asset and consider relevant market conditions.
How and where to buy Lloyds shares in 2021
One way to trade shares in Lloyds is with contracts for difference (CFDs) on Capital.com. CFD trading allows you to speculate on movements in the share price without having to own the underlying stock.
CFDs give you the opportunity to try to profit from both positive and negative price fluctuations. If you expect the share price to rise, you can open a long position. If you think it will fall, you can short the stock.
One difference with CFD trading is that you can use leverage to open significantly larger positions with a smaller amount of initial capital. You should be aware, however, that using leverage also maximises the size of your losses if the share price moves against your position.
Make sure you understand how CFDs work before you start, and never invest money you cannot afford to lose. Learn more about CFDs with our comprehensive guide. You may also wish to create an account on Capital.com to stay on top of the latest Lloyds share price news, analysis and forecasts to spot the best trading opportunities
Edited by Valerie Medleva
While the LLOY share price has gained almost 20% so far this year, it still remains far below the levels it was trading at in early 2020 before the Covid-19 pandemic hit. As the UK economy recovers from the pandemic, Lloyds may benefit. The algorithm-based services are not particularly optimistic, however, with WalletInvestor predicting a fall to just £0.11 by the end of 2025.
Whether you believe those stock predictions is a decision only you can make. It’s vital to carry out your own research. Also, keep in mind that past performance is no indicator of future returns.
The Bank of England is expected to raise interest rates in mid-2022. Higher interest rates are beneficial for the banks, boosting net interest income. With this in mind, the Lloyds Bank share price might potentially rise next year. Should the UK economic recovery falter, however, the company’s share price could fall.
The stock traded at £0.50 in early June 2021. The share price has since dipped below that level, however, losing 12% in the last quarter. With economic growth of 4% expected next year and the BoE on target to raise interest rates, it’s not impossible that the LLOY share price could soon recapture £0.50.
In the meantime, it’s important to keep in mind that stock markets remain as volatile as ever, making it hard to predict where the price will be in a few hours, and even harder to give long-term estimates. We recommend that you always do your own research before making any investment decisions.
That depends. According to MarketBeat, the stock has a consensus rating of buy based on feedback from 10 analysts. The bank has recently reinstated dividends, and the UK economic outlook is encouraging. The BoE is expected to raise interest rates next year, and that could help raise net interest income at the bank as well. Whether it is a buy for you, however, is another matter and will depend on the makeup of your portfolio and your investment goals.
Analysts don’t always get it right. So whether you believe their Lloyds stock predictions is up to you. It’s always vital to carry out your own research. Keep in mind that past performance is not an indicator of future returns.