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Lloyds shareholders have, since the beginning of 2014, endured the most sustained period of weakness for the shares since March 2013, with the price dropping back from around 85p to a low of 70p.
Since then, they have recovered, but questions over the size of the PPI and the continuing sale of the government’s stake linger. Analysts have increased their earnings forecasts for the bank, and on a number of fundamental metrics it is starting to look more attractive.
The bank itself trades on a forward price-earnings ratio of around 10, which is below the FTSE 100 average of 15.3, while dividend payouts are also forecast to increase over time, pushing the yield above 4% from its current level around 2%.
Costs have been cut drastically and non-core assets sold off, and this remains a bank that is committed to returning to full private ownership in due course.
The recent slump in the share price took the shares into oversold territory but since then they have been boosted by the usual pre-result enthusiasm. As long as they remain within this upward channel I am confident that they will retest the highs just above 85p. When compared to Royal Bank of Scotland, the bank is a much more attractive prospect; a fact supported by the share price performance of the two. Lloyds has dropped by 5.8% year-to-date, but RBS has shed 11.8% in the same period.
The performance difference is even starker over the past twelve months. RBS has risen barely 1%, but Lloyds is surging away with 41% gains. More government share placings will arrive in due course, as Whitehall finally divests itself of its stake, and rising earnings per share will help to take the edge off any increases in PPI provision.