Every investor loves a good value stock — something solid, reliable and trading for less than it’s probably worth. That’s what I thought I was getting when I added Lloyds Banking Group (LSE: LLOY) to my Self-Invested Personal Pension back in June 2023.
Back then, the shares traded at 45p. The price-to-earnings ratio was under six. The price-to-book was just 0.4. That was screaming value to me, so I loaded up. And I’m glad I did. My shares are now up 70% while reinvested dividends have lifted my total return to 93%. I’m happy.
Would I buy Lloyds shares today? They’re not quite the bargain they were. With the shares up 27% over one year and 80% over two, the P/E has doubled to around 12. The price-to-book now stands at exactly 1. On paper, it’s no longer in bargain basement territory. But it doesn’t look overpriced either.
Lloyds has delivered a mixed bag of results this year. In its Q1 2025 update, published on 1 May, profit after tax dipped 7% to £1.1bn. However, net income climbed 4% to £4.39bn, with net interest income up 3% to £3.29bn. Net interest margin, a crucial financial metric, rose to 3.03%.
The core business looks steady enough. Lloyds continues to benefit from interest rates staying relatively high, which allows it to profit on the difference between what it charges borrowers and pay savers.
The bank’s CET1 capital ratio is a healthy 13.5%. Tangible net asset value also edged up to 54.4p. That suggests the bank is still well-capitalised and generating value.
But there are risks. The UK economy shrank slightly in recent months. Inflation has proven stickier than expected. There may be just two more interest rate cuts this year, and house prices remain stretched relative to earnings.
That’s a problem for Lloyds, which is heavily exposed to UK housing market fortunes via its Halifax ops. On the other hand, if rates fall quicker than expected, Lloyds’ net interest margin may narrow. Add in the motor finance scandal, which investors appear to have forgotten but could still end in a big payout, and I can see reasons to be cautious.
Lloyds is also vulnerable to any sharp uptick in loan defaults if economic conditions worsen. It’s now set aside £309m for potential impairments, up from £57m a year ago. Plus some Labour MPs are calling for more taxes on the banks. I wouldn’t be in a rush to consider buying Lloyds right now, although there’s no way I’m selling.
Analysts are split. Of 20 covering the stock, six rate it a Strong Buy, but a majority of 12 say Hold. I lean to the latter view.
