As a Lloyds Banking Group (LSE: LLOY) shareholder, I have to believe the Lloyds share price can reach £1, don’t I? It would need to more than double to achieve that. So is it feasible, and when might it happen?
Picture the shares on a P/E ratio of 15, which is close to the FTSE 100‘s long-term average. That would need the Lloyds share price to double to 90p, based on 2022 earnings forecasts. But it doesn’t sound like an outrageous valuation to me.
Analysts are predicting a small fall in earnings for the current year, to approximately 6p per share (from 7.5p in 2021). So I don’t really expect the markets to value the stock on such a P/E just yet.
But once Lloyds gets back to earnings growth, I reckon it could head in that direction. Even a lowly P/E of 10 would still suggest a 60p share price.
Dividend progress
Much, I’m sure, will depend on the dividend. The 2p per share paid for 2021 would represent a 4.3% yield on the current share price if repeated in 2022. On a £1 price, it would reach only 2%, and I would not find that attractive.
What’s the minimum yield I would want from my Lloyds shares? Providing it’s progressive, I’d be happy enough with something around 3.5%. That would mean 3.5p for a Lloyds share price of £1.
That’s a bit above pre-pandemic levels, and the chances of it happening this year look slim. Maybe we won’t see 3.5p dividends for another couple of years. But what events in 2022 might help bring such a target forward?
Impairments skewed results
Results for 2021 were impressive. But the figures were boosted by an underlying impairment credit of £1.2bn. The previous year, by contrast, brought a £4.2bn impairment charge to cover potential bad debts stemming from the pandemic.
That wasn’t all needed, and the 2021 credit put some of it back onto the balance sheet.
I’m a little concerned that 2022 might see another reversal of the impairment situation, which could hold back the Lloyds share price further. The year so far has seen huge rises in energy prices, plus post-pandemic supply chain problems worldwide. And that’s even without the Ukraine war effect.
Lloyds share price pressure
So inflation is soaring and interest rates are rising. And businesses, as well as individuals, are being hit hard in the pocket again. The risk of debt defaults and new impairment charges must be growing.
Lloyds’ Q1 figures are due on 27 April, though I think just one quarter will probably not tell us too much. First-half results due in July, though, might be a different thing altogether. I’m hoping we’ll start to get a clearer picture of how the current world economy might impact in Lloyds’ profits for 2022. And on the balance sheet and the bank’s impairment situation.
So, back to the original question. When will the Lloyds share price reach £1? I really can’t say if, or when, it might. But I hope I’ve touched on a few issues that should give us some clues during the year.