This looks like a deceptively easy question on the face of it, after all the stock returned +80.65% over the last 12 months, according to data from Barchart.com.
However the more I dig into the question the more complex it becomes. And that’s because we have to look away from the performance data and ratios, and consider the bigger picture.
Lloyds is almost 100% exposed to the UK in revenue terms, true it enjoys significant market share in key sectors such as mortgage lending. However looking at the state of the UK housing market, and economy, that could just as easily be a poison chalice as much as a holy grail for the bank.
House building is slowing dramatically in the UK, that despite the Labour govts goal of building 1.50 million new homes in the current parliament.
The so called mansion tax and the initial proposal about levying IHT on large family farms shows that this government sees private property as potential cash cow.
And having drunk from the well once, it’s highly likely they will come back for another swig.
Income tax was of course introduced as a temporary measure to help fund the Napoleonic wars but 200 years (and more) later its still here.
And though, Rachel Reeves resisted the temptation to place additional surcharges on bank profits in November, will she be able to resist low hanging fruit like that in future?
The UK economy is currently flatlining in GDP terms. The jury is still out on inflation, and unemployment is on the rise. None of which will help decidedly shaky looking UK finances, and neither is it bullish for the domestic economy on which Lloyds relies.
Returning to Lloyds historic performance and key ratios: 5 year revenue growth at the bank come in at just +0.54% whilst dividend growth over that period is negative at -2.31%.
Provisions against motor finance compensation claims have dragged YoY and QoQ EPS growth into negative territory as well, though over 5-years earning have grown by almost +13.0% and the bank currently enjoys 20.0% profit margin.
Lloyds needs to grow its top line, because cost cutting and reductions in head count and high street branches, can only carry the bank so far. It seems unlikely that it could win significant market share without the demise of a competitor, and Santander’s recent purchase of TSB suggests that’s unlikely.
I think the best that Lloyds can hope for is the status quo and given that I would refer to own a UJK bank with overseas exposure such as Barclays.
