5.6 reasons why I think the Lloyds share price could bomb in July

With half-year financials just around the corner, could Lloyds Banking Group plc (LON: LLOY) be cruising for a bruising?

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With fresh financials just around the corner I think it’s time that Lloyds Banking Group (LSE: LLOY) shareholders find something hard to bite down on.

Trading numbers for the six months to June are slated for July 31 and I’m not expecting anything but another ghoulish update. The FTSE 100 firm certainly spooked investors in May with news that revenues stagnated and impairments rose in the first quarter of 2019, and signs of worsening economic conditions in the UK suggest that those upcoming financials could be even worse.

For Lloyds, and indeed the broader banking sector, Bank of England consumer lending data this week certainly provides plenty to worry about. This showed the rate of consumer credit growth continuing to slide in recent months and in May this registered at just 5.6%. In other words lending to Britons fell to its lowest since April 2014.

Scant consolation

There was one scrap of comfort for the Black Horse Bank though, as Threadneedle Street’s report showed that total mortgage approvals fell just fractionally in May to 65,400. A heftier fall would really have turned up the heat on the bank given its position as the UK’s largest mortgage lender.

Don’t get too excited. Sure, aggregated home loans demand in Britain may still be holding up, and could well continue to do so given the huge choice of ultra-cheap mortgage products out there. However, this stability in the mortgage approvals gauge owes much to the ultra-competitive market which is reducing homeowner costs at the expense of profits for Lloyds et al.

Too cheap to ignore?

All things considered, that fresh news flow from the Bank of England gives Lloyds shareholders plenty more to think about. The company’s share price has already sunk 15% since its 2019 high above 66p per share, and there’s plenty of reason to expect it to keep falling.

I’m not going to discuss in any detail the direct implications of Brexit for the banks now and in the future — this continues to be done to death, after all. What I will say, however, is that the economic outlook for Lloyds and its peers is far from favourable, and will simply refer you to predictions from EY Club. It said: “With Brexit being delayed until 31 October and the domestic UK political situation unsettled, prolonged uncertainty will weigh down on the economy and hamper the housing market.

This increasingly-hostile environment has prompted City analysts to hack back their 2019 earnings forecasts for Lloyds with gusto — current consensus is for a modest 2% rise — and it’s quite likely that further downgrades will come. This is why I’m not bothered by the company’s low valuation (a forward earnings multiple of 7.6 times).

Nor am I attracted by Lloyds’ giant 6%+ dividend yield. While it might be able to turbocharge the annual payout again this year, I doubt the bank’s ability to keep doing so as Brexit drags on and the possibility of an economically-devastating no-deal EU withdrawal gets ever closer.

There are plenty of low-cost dividend heroes on the Footsie that I’d buy today, but I’m afraid Lloyds isn’t one of them.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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