Lloyds Banking Group share price hits 4 ¾ year high: where to next?
Lloyds Banking Group Q3 results preview amid strong rally in the bank’s share price.
Lloyds Banking Group Q3 Results Preview: UK Banking Sector Poised for Growth
As Lloyds Banking Group prepares to unveil its third quarter (Q3) results on Wednesday, 23 October, analysts are closely watching the UK banking sector, which they believe remains undervalued despite facing challenges. This article examines the key factors influencing Lloyds and the broader UK banking landscape ahead of the eagerly anticipated earnings report.
Sector Valuation and Economic Outlook
According to UBS analysts, the UK banking sector is currently trading at 5.9 times forecast 2026 earnings, representing a 13% discount compared to their own estimate of 6.8 times. This valuation gap suggests potential upside for investors willing to look beyond short-term uncertainties.
The upcoming UK Budget announcement by Chancellor Rachel Reeves is expected to provide much-needed clarity on the tax outlook for the sector. Banks are currently subject to:
- 25% corporation tax
- 3% surcharge on banking profits exceeding £100 million
- 0.10% levy on certain balance sheet liabilities
While there's speculation about potential increases in the sector's tax burden, some analysts believe that any rise in costs could eventually be offset by adjustments in industry spreads, potentially leaving aggregate returns unchanged over time.
Structural Hedges and Interest Rate Environment
One key factor supporting the investment case for UK banks has been their use of structural hedges. This strategy has allowed banks to defer the benefits of higher interest rates to periods when this income is expected to be more valuable. As the Bank of England (BoE) is projected to cut rates to as low as 3% by next winter, these hedges should help support net interest income growth, even as the broader economy benefits from lower borrowing costs.
Looking Ahead: 2024 and Beyond
Analysts anticipate that by this time next year, banks will have experienced:
- Normalisation of deposit mix
- Improved credit demand
- A more favourable growth outlook
- An upward sloping yield curve
These factors combined could create a more positive operating environment for UK banks, including Lloyds.
Q3 Expectations and Key Focus Areas
While the Q3 results may not provide comprehensive answers on how well Lloyds is managing the initial phase of rate cuts and customer reactions, investors will be keenly focused on management commentary for insights into these areas.
For Lloyds Banking Group, analysts will be paying close attention to:
- Future guidance: Given the uncertain economic backdrop, any forward-looking statements will be scrutinised for clues about the bank's strategy and expectations.
- Motor finance remediation costs: The ongoing uncertainty surrounding these costs and their potential impact on Lloyds' bottom line remains a key concern for investors.
Lloyds Banking Group TipRanks Smart Score and Analyst Rating
Lloyds Banking Group has a TipRanks Smart Score of ’4 Neutral’ and is rated as a ‘hold’ by analysts with 2 ‘buy’ and ‘7’ hold (as of 18/10/2024).
According to LSEG Data & Analytics, analysts rate the Lloyds Banking Group share as a ‘hold’ with 1 ‘strong buy’, 6 ‘buy’, 11 ‘hold’ and 1 ‘sell’ (as of 18/10/2024).
Lloyds Banking Group technical analysis
On Thursday, the Lloyds Banking Group share price, up 28% year-to-date, hit a 4 ¾ year high by rising to 62.02 pence. It is a level last seen in January 2020, before the Covid-19 pandemic.
Lloyds Banking Group monthly candlestick chart
The next technical upside target is the April 2019 peak at 66.80p, followed by key resistance at 72.76p-to-73.66p. It consists of the March and May 2016 highs, the May 2017, January 2018 and December 2019 peaks. As such it is likely to cap, when eventually reached.
The 17% rally from the Lloyds Banking Group early August low – by around 8% in the past couple of weeks alone - bodes well for the bulls as momentum tends to beget momentum.
Lloyds Banking Group daily candlestick chart
The rise and daily chart close above the July peak at 61.72p also points towards further upside being in the pipeline.
Good support can now be found between the late August and September highs at 59.68p-to-59.48p.
While the September low at 56.24p underpins, the medium-to-long-term uptrend will be deemed to be intact.
How to trade Lloyds Banking Group shares
As one of the most widely held stocks in the UK, Lloyds Banking Group offers various trading opportunities for investors. Here's how you can trade or invest in Lloyds shares:
- Research Lloyds Banking Group's financial performance, market position, and growth prospects.
- Decide whether you want to trade or invest in Lloyds shares.
- Open an account with IG by visiting our website and completing the application process.
- Search for 'Lloyds Banking Group' or its ticker 'LLOY' in our trading platform or mobile app.
- Choose your position size and place your trade, ensuring you have appropriate risk management measures in place.
Whether you're looking to spread bet on short-term price movements or invest for the long term through share dealing, IG offers a range of products to suit your trading style and risk appetite.
Conclusion
As Lloyds Banking Group prepares to report its Q3 results, the UK banking sector stands at a crossroads. While challenges persist, including regulatory pressures and economic uncertainties, the sector's current valuation suggests potential opportunities for discerning investors. The upcoming earnings report and management commentary will provide crucial insights into how Lloyds is navigating these complex waters and positioning itself for future growth in an evolving financial landscape.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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