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I was waiting Lloyds Banking Group (LSE: LLOY) price to gain ground after H1 results on Thursday (25 July).
But I was disappointed to see an increase of only 1.6% per day. And that's even though the results were better than expected.
Lloyds shares are still up 25% so far in 2024, but that pales in comparison to the massive 65% increase we've seen NatWest Group.
Short-term effects
Profit before tax in the first quarter fell from last year. But while market analysts were expecting pre-tax profit of £3.2bn, Lloyds beat it by posting £3.32bn.
However, the decline was partly down to a decline in the bank's profit margin, which fell to 2.94% from 3.18% last year.
According to experts, we could be looking at a 50% chance of a key rate cut when the Bank of England next meets to discuss it, on 1 August.
The decline should reduce banks' net profits further. And that may be the reason behind the lack of response to these results.
What's next?
But what about the outlook for Lloyds, and what might it mean for the future of the share price?
In the segment section, the bank confirmed its guidance for 2024, which aims to return on equity (ROTE) of around 13%. It also wants to get its CET1 ratio, which is a key measure of liquidity, to around 13.5%.
Then by 2026, the ROTE target is set at more than 15%, which would be a solid gain. But we shouldn't expect to see any progress with CET1, which has fallen back slightly to around 13%.
These would be strong results, not even close to raising any liquidity problems. And CET1 targets are much better than minimum regulatory requirements.
Measurement
Forecasts have a price-to-earnings (P/E) ratio of 10 for the current year. The long-term average for the FTSE 100 is about 50% higher than that.
With today's financial uncertainty, that may be a fair amount for this year's earnings. But forecasts show earnings per share (EPS) rising 40% between 2023 and 2026, although there has been a decline this year. The 2026 P/E would be about 7 lower if they are right.
In the short term, I think many will see today's stock price as high enough for now. And until this year is over, and the expected decline in profits is behind us, investors may not want to put much into Lloyds.
The interest margin threat depends on it as well.
The dividend yield fell to 4.6% as the price increase we have seen removes some of the attractiveness. At least until we see it go up again, after the last payment for 2024 is out.
The future
So, I fear a flat second half for Lloyds shares. But the top end of the consumer price is up around 71p, for an 18% gain on today's price.
I see that as a possibility, at least in 2025 if not this year so the stock would be worth considering.
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