The Lemon Fool

The news re Lloyds has, to my layman's ears, been positive about Lloyds for the last year or so: PPI coming to an end, dividends resuming, business in good shape and expecting to become a regular little cash cow etc.

Why then has the share price drifted sideways for the last year, instead of a steady upward trajectory? Obviously Mr Market sees a less rosy picture (or had already priced in a high yielding profitability?)

The last quarter's results were another dose of good news, but the market has remained unimpressed.

Puzzled of VRD Towers.

vrdiver wrote:The news re Lloyds has, to my layman's ears, been positive about Lloyds for the last year or so: PPI coming to an end, dividends resuming, business in good shape and expecting to become a regular little cash cow etc.

Why then has the share price drifted sideways for the last year, instead of a steady upward trajectory? Obviously Mr Market sees a less rosy picture (or had already priced in a high yielding profitability?)

The last quarter's results were another dose of good news, but the market has remained unimpressed.

Puzzled of VRD Towers.

Shhhh! Just keep buying while everyone else wants fixed-interest, irredeemable preference shares....


GS

vrdiver wrote:The news re Lloyds has, to my layman's ears, been positive about Lloyds for the last year or so: PPI coming to an end, dividends resuming, business in good shape and expecting to become a regular little cash cow etc.

Why then has the share price drifted sideways for the last year, instead of a steady upward trajectory? Obviously Mr Market sees a less rosy picture (or had already priced in a high yielding profitability?)

The last quarter's results were another dose of good news, but the market has remained unimpressed.

Puzzled of VRD Towers.

My last reply looked frivolous but had a serious side, which is that I believe markets do not always price securities correctly. (Yes I think EMH is a crock.) Clearly recent market participants had the wrong idea about preference shares and I'd expect those to reprice to more realistic levels over time.

The ords I think are going through a similar period of relative under-valuation. Lloyds is recovering from a life-threatening crisis ten years ago. I see the stages of share price progression though a crisis as follows:
-a very long period of positive conditions for the share accompanied by growth in both the share price and dividends.
-increasing complacency by all parties, smart money selling, holders and new buyers don't care about price only how much dividend can be extracted. The capital and economic viability of the business are stripped away without anyone noticing. Finally, share price fails to keep pace with dividends. Dumbest money buys in.
-then (in 2007-9 for LLOY) the crash, where the true state of the business is exposed and perceived shareholder value evaporates. A rescue is required: injection of new capital, disposing of unprofitable business etc. The price remains depressed but volatile. The share is hated.
-gradually stability is restored; hatred of the business gradually turns to boredom/disinterest as the lurid headlines become infrequent and volatility drops. Smart money is buying; dumb money has been burned, doesn't care and is buying other expensive stuff.
-the previous two phases take years, typically a decade -- see tech stocks after 2000 for example. So I think banks are near the end of this phase. The scene is set for multi-decade growth again.

To me investors are just bored and uninterested in this sector. The price really means nothing -- you are right to be noticing the increasing profitability and positive noises from management. I'm just buying steadily, have a large exposure to bank shares already but don't mind going overweight. I think we will be rewarded.

GS

i am long in Lloyds for similar reasons

As far as I'm concerned, the big cloud hanging over LLOY is heavy exposure to an economy whose government is determined to harm it.

And I don't just mean brexit. Damaging pumping up of house prices has been going on a lot longer, leaving a sector that's huge for Lloyds addicted to ever more public money - and hence political risk.

Woodford Funds, commentary - 24-Apr.

The valuation of this business remains compelling. As investors, we are receiving a c. 5% dividend yield and a c. 5% buyback and are thus being returned 10% of the market capitalisation on an annual basis. The bank is generating high returns on tangible equity (15.4% underlying) yet trades on a very modest multiple of tangible book (1.2x 2019E). A price/earnings ratio of 8.5x 2019 estimated earnings is, in our view, an undemanding multiple for a business that is growing underlying profitability at mid-to-high single digits per annum. The bank continues to demonstrate steady improvement in all key metrics, yet the valuation multiples have yet to respond – this is very encouraging for future share price performance.'

woodfordfunds.com/funds/holdings/lloyds/

I haven't done the figures, but I don't think the buy back is the same as the dividend. I think it is about a third of the dividend.

The SP seems to be drifting to a new year low and was under 63p this morning. Any reason for this?

My own view is that the economy is currently looking worse that is why I have sold some of my Lloyds (I did about a week ago). I have sold some of all of my UK banking shares as they depend substantially on the economy.

beeswax wrote:The SP seems to be drifting to a new year low and was under 63p this morning. Any reason for this?

Supply and demand.

GS

The difficulty is that the uncertainty caused by all the lack of decision about Brexit will prevent investment. Even when there is more certainty it will take some time for the economy to recover as investment won't pick up immediately.

I have quite a large holding of Lloyd's and similarly am a little surprised that the SP has not been stronger.

For so so long the recovery in bank profitability has been just round the corner but there always seems to be another 'exceptional' hit.

Longer term I think the old banks are going to have big big problems. Technology is going to (and already is) make competition from new entrants much easier. They are going to cherry pick the profitable bits and margins may fall sharply. The old banks are stuck with huge overheads (branches, expensive head offices etc) that their nimble disruptor competitors won't have.

The golden age post PPI of strong profits may not last very long!

If that isn't enough a Momentum government would almost certainly not be good news for bank profits.

Still holding Lloyd's and Barclays in hope

beeswax wrote:The SP seems to be drifting to a new year low and was under 63p this morning. Any reason for this?

Govt dumped a slab of their holding of RBS thumping the SP, and it appears to be sector read-across [IMHO].

johnhemming wrote:My own view is that the economy is currently looking worse that is why I have sold some of my Lloyds (I did about a week ago). I have sold some of all of my UK banking shares as they depend substantially on the economy.

Au contraire, figures out earlier [services PMI] today show the UK forging ahead, whilst the EU [retail sales] is retrenching.

Would be nice to use the opportunity to pick up some more prime yield, but I reckon capital appreciation is out of the picture whilst the market reacts like this to some govt trimming. Ie you'd have to believe the yield% was sufficient compensation and be considering it as truer 'invest and forget' long-term investment.

Six months on and the market has not been kind..Lloyds Ordinary shares are trading at ~50p and a yield of over 6%. Where to next?

I am holding those I didn't sell earlier. I take the view that the uncertainty in itself is causing a problem. No deal would cause material economic damage, but even if it happens there is likely to be a deal after that which may be really humiliating, but will result from public pressure.

I did a risk analysis a short while ago and concluded that I should not sell my remaining banking shares.

oh, the good old days at 50p a share and a dividend.

Are Lloyds using the dividend money to buy back previous loans? (tender offers/ C$ buyback)

https://www.londonstockexchange.com/exc ... 8GBGBXSET1

monabri wrote:oh, the good old days at 50p a share and a dividend.

Are Lloyds using the dividend money to buy back previous loans? (tender offers/ C$ buyback)

https://www.londonstockexchange.com/exc ... 8GBGBXSET1

Not strictly, no. But they are carrying on as normal with respect to their Capital management decisions.

Dealtn/Monabri
I find it impossible to rationalise why Lloyds are down where they are, every year since about 2014 I promised myself would be a better year for them, every year I was wrong, but not being allowed to pay a dividend totally blindsided me.
Without a yield it is much more difficult to value of course. So now I'm sorely tempted to cut & run I wonder ;
1) Does this indicate the capitulation point from which it will recover
2) Is it worth cutting at this price
Sadly to both questions I have no consistent answer so I fear the death of a thousand cuts will continue, I suspect I am not the only investor feeling this way?
The first cut is the deepest but I missed that one a long time ago !

barchid wrote:.,...I'm sorely tempted to cut & run I wonder ;
1) Does this indicate the capitulation point from which it will recover
2) Is it worth cutting at this price

I have relatively few ords, along with some RBS that seemed a good idea at the time.

The Lloyds prefs are still paying, I have rather more of those and have added recently even though I don't really trust Lloyds not to undertake some jiggery pokery to try and redeem them.

Given the gubmt's tendency nowadays to interfere in the banking business, and the trajectory of interest rates, it's hard to see how banks are supposed to make decent profits in the foreseeable future.

Whether it's still worth selling depends how much value you have remaining. Plenty of high yields on offer across the FTSE, if one disregards the temporary hiccup in divi flows, and as an income investor it's the yields that I seek.
Is it worth selling.... well, my ords, shrug, move along, nothing much to see here.

V8

barchid wrote:Dealtn/Monabri
I find it impossible to rationalise why Lloyds are down where they are, every year since about 2014 I promised myself would be a better year for them, every year I was wrong, but not being allowed to pay a dividend totally blindsided me.
Without a yield it is much more difficult to value of course. So now I'm sorely tempted to cut & run I wonder ;
1) Does this indicate the capitulation point from which it will recover
2) Is it worth cutting at this price
Sadly to both questions I have no consistent answer so I fear the death of a thousand cuts will continue, I suspect I am not the only investor feeling this way?
The first cut is the deepest but I missed that one a long time ago !

No idea, and no idea.