Where now for Lloyds?

Having broken below its break-even level, the government's intention to sell its remaining 9% holding in Lloyds looks less certain. 

Lloyds Bank exterior
Source: Bloomberg

The biggest driving force behind Lloyds this year will be where it sits in relation to the government’s break-even level of 73.6p. Politics and equity markets are never particularly comfortable bedfellows and the risk of the Conservatives giving free ammunition to the opposition will weigh heavily on their decision as to what action to take. Crystallising its involvement in holding Lloyds shares at a loss is likely to be the deciding factor that will decide if the government goes ahead with the sale of its final 9% holding in the bank. 

At the moment, Lloyds 12-month dividend yield is 2.33% but expectations are that this will rise once the government has sold off its final stake and the management is free from political oversight. Lloyds makes up just over 20% of the FTSE banking sector weighting. Although the initial reaction to the 12.19% fall in the share price over the last year might be disappointment, it is, in comparison to the other big four banks in the FTSE, the best of the bunch. Institutional exposure to the banking sector will fluctuate but ultimately it is too important to ignore and Lloyds arguably has a better chance of outperforming than the others.

Institutional analysts’ expectations for the bank are positive with 20 buys, five holds and five sells. The average 12-month price target for the company is 86.58p, offering a healthy 30.5% premium from the current share price for the firm.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG.
The worrying start to 2016 has not been kind to Lloyds shares, which have dropped out of a 20p range that held for over two years. The break and close below 70p last week completes a long double top formation and provides us with a bearish view going forward, as highlighted by the weekly chart. The projected target taken from this double top formation provides us with the 50.5p level; some 22% lower than current price.

Given the break below 70p, there is a clear bearish outlook going forward, which will be in place unless price closes back above 75p. While we have seen a bounce from the 38.2% Fibonacci this week, this is expected to be sold into, with a retest of 70p in particular a good source of new resistance.

Should this 2016 selloff continue, the key support levels of note are 55.5p (50% retracement), 50.5p (double top projection) and 46p (2013 low). Meanwhile, any bounce would be looking at 70p and 75p as notable resistance levels.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find articles by analysts