July’s UK consumer price index (CPI) came in hotter than expected at 10.1%. This is a 40-year high and has the potential to drive share prices further down as consumers struggle with a cost of living crisis. So, here are five shares I’m considering buying.

Lloyds

As the UK’s biggest lender, I believe Lloyds (LSE: LLOY) shares are a sound choice for my portfolio. It earns its money from the difference in providing and earning interest from loans. This is otherwise known as net interest income.

Interest rates are expected to go as high as 3% by 2024 as the Bank of England tries to combat inflation. As a result, the high street bank should get a top-line boost from higher lending costs, while benefiting from lower interest paid to customers. With enough cash to set aside for bad loan provisions, Lloyds doesn’t need to increase its savings rate to bring in more cash, thus allowing it to increase its profits. This was evident in the company’s latest half-year results, which saw it recording excellent numbers.

It’s worth noting, however, that the majority of its income stems from mortgages. With house prices and mortgage approvals starting to decline, it remains a possibility that Lloyds’ revenue could be impacted. Nonetheless, analysts think that the increase in rates should offset any declines for the time being. In fact, Lloyds stock is rated a buy as its dividend is also expected to increase. It has an average price target of 64.33p, or a 40% upside.

SSE

Energy prices have been the main culprit behind sky-high inflation. That’s because energy prices are at their highest levels since 2009. As such, I think SSE (LSE: SSE) is a share to buy for my portfolio given the circumstances.

When wholesale energy prices go up, energy suppliers increases their rates to cover the extra costs. This has allowed companies like SSE to benefit, with its top and bottom lines seeing modest increases. As a matter of fact, its profit and loss account saw its best numbers in FY22, which is why its shares are up 9% this year.

The latest inflation report shows that energy prices rose 3% on a month-on-month basis. And with a higher price cap expected in October, SSE should benefit from this. After all, its latest trading update indicates that it expects adjusted earnings per share (EPS) of at least £1.20 for FY23. This would bring its EPS to its highest level in five years.

Additionally, its dividend yield of 4.7% is rather modest and is expected to rise given its most recent increase in payout, from 25.5p to 60.2p. SSE shares are rated a moderate buy with an average price target of £20.78.

Unilever

Next on my list is Unilever (LSE: ULVR). Its share price has been rather volatile this year. Nevertheless, it has recovered by 5% since its reported its H1 numbers. Its shares are now only down by 1% on a year-to-date basis.

The fast-moving consumer goods conglomerate produces beauty products and personal care, foods and cleaning agents. Its brands include Lynx, Ben & Jerry’s, Dove, and many more. These are household names and have tremendous pricing power, given the inelastic demand surrounding most of its products. This is strongly reflected in the revised outlook given by CEO Alan Jope, when he improved the firm’s guidance.

Our guidance for underlying sales growth in 2022 was previously at the top end of a range of 4.5% to 6.5%. We now expect underlying sales growth to be above that range, driven by price with some further pressure on volume.

Unilever CEO Alan Jope

Nevertheless, it should be noted that Unilever shares are more of a defensive play to protect from potential downside at the moment. Analysts are forecasting an average price target of £40.81, which only means a potential 3% gain if I were to buy shares now.

Burberry

Burberry (LSE: BRBY) shares are a good inflation hedge, in my opinion. The brand’s status as a luxury retailer allows it to pass on many of its costs to consumers given the nature of its target market. This was confirmed by CFO Julie Brown in its Q1 trading update, with a positive outlook for the company.

The FTSE 100 retailer has benefited from the return of global travel, with a substantial amount of its sales coming from tourists. It saw its like-for-like sales numbers grow by 1% on an annual basis, despite lockdowns in key revenue driver, China. Excluding China, sales figures were actually rather impressive. They were 16% higher in Q1 overall, with EMEIA boasting impressive 47% growth. Moreover, the company’s most profitable products (leather goods and outerwear) also saw double-digit growth.

That being said, I should point out that China remains the firm’s achilles heel for the moment. With its government sticking to its zero-Covid policy, I don’t expect sales figures from that region to see an uptick any time soon. This is why its average price target currently sits at £19.34. Therefore, this is more of a long-term investment with a higher upside once China’s retail sales fully recovers.

Tesco

Last on my shopping list are Tesco shares (LSE: TSCO). Given that its core products are consumer staples, I’m expecting Tesco shares to be robust in a recessionary environment. It’s also been steadily increasing its dividend payouts, which should serve as an added benefit.

As the market leader in the UK supermarket sector with more than a quarter of the market share, I think Tesco will be able to outperform its peers. Its Aldi price match across hundreds of items has been a success so far. According to the last several Kantar grocery reports, the supermarket leader has seen its market share remain relatively robust. It has also managed to outperform most if its competitors with higher sales figures. And its Q1 trading update showed its strength in the industry.

Having said that, sales figures are expected to come in slightly lower for the year. The grocer no longer enjoys the tailwinds of the pandemic and faces slower sales as a result of high inflation. Even so, I still think Tesco can utilise its strong supply chain and relationship with customers to match last year’s stellar performance. Analysts seem to share the same sentiment, rating Tesco shares a strong buy with an average price rating of £3.19.

The post Inflation hits 10.1%! 5 shares to buy now! appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• 3,566 shares in this FTSE 100 stalwart earns a £1,443 second income
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s what a surging Tesco share price has done to £10,000 invested 5 years ago

John Choong has positions in Burberry. The Motley Fool UK has recommended Burberry, Lloyds Banking Group, Tesco, and Unilever. 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.

Investors have been bearish on Lloyds (LSE:LLOY) shares for a few months now. Ever since hitting post-pandemic highs of 55p in January 2022, Lloyds shares have fallen over 20%. They are currently trading at 43p. But all this could change in the coming months. Sings of economic recovery are getting stronger. And with the bank of England (BoE) set to meet in August, I think this could be the perfect time for me to capitalise on the cut-price Lloyds share price before it returns to pre-pandemic highs. 

BoE’s woes

In order to curb inflation in the UK, the Bank of England has steadily increased interest rates this year. After the last hike, interest rates stand at 1.25%, up from 0.1% in December 2021. 

The committee that decides interest rates is set to meet again on 4 August and BoE Governor Andrew Bailey has warned that another 50-point hike is on the table. This would take the interest rate to 1.75%. And given that most estimates suggest an 11% inflation rate by the end of the year, I think the BoE will go through with the 50-point hike. 

The base interest rate hikes throughout this year have already caused a 10% jump in net interest income for Lloyds in the first quarter (Q1) of 2022. And with the banker set to release half-yearly results on 27 July, I expect a similar bump in earnings. But can the extra cash from interest payments alone boost the Lloyds share price?

The Lloyds share price offers value

There is a simple equation to factor in here. Higher base interest rates equal higher earnings for Lloyds bank. And the gap between the interest paid by Lloyds on cash held in accounts (which is expected to remain stable) and the interest received from loans will grow wider.

Also, this is a positive sign for Lloyds shares’ yield of 4.57%. Given the strong cash generation, the board expects to increase yield progressively starting from 2021’s dividend of 2p per share. The Lloyds dividend also comes with an earnings cover of 3.9 times. 

Given these factors, I think the Lloyds share price offers decent value at its current levels. But there are factors that could trigger a further collapse as well. 

When the economy suffers, consumer buying power decreases. And the latest retail sales data backs this up. Fuel, clothing, and housing goods sales all fell by over 3.5% in June 2022. And online sales figures are falling rapidly after seeing a huge surge during the pandemic. Online sales fell by 3.7% last month and accounted for just 25.3% of total retail sales in June, compared to 37.4% in February 2021.

Another factor to consider is how much the average investor would be willing to invest in a recession. Daily trading volume has fallen 23% since March 2022. This is a strong sign that investor activity will drop rapidly if the UK government announces a recession.

However, the Lloyds share price looks more attractive to me compared to other top UK bankers. It’s cheap right now, has a robust yield, and could continue to generate higher revenue for the foreseeable future. I am waiting for the results later this week and would add Lloyds shares to my portfolio if the market reaction is favourable. 

The post Could the Lloyds share price finally be back on its way up?  appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Suraj Radhakrishnan 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.

Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

It’s always best to compare firms’ new quarterly/half-year numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. It can also be useful to consider whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. Analysts in the UK don’t always publish earnings previews for quarterly or half-year periods, but given their popularity, the shares covered below are exceptions.

Lloyds (H1 Earnings)

Lloyds (LSE: LLOY) is one of Britain’s biggest financial institutions. Its brands include Lloyds itself, Halifax, and Bank of Scotland. It earns the bulk of its revenue from mortgage loans. The FTSE 100 bank is expected to post its half-year earnings for its six months performance ending June on 27 July. The company’s financial year ends in December.

The overall consensus is that Lloyds is expected to continue growing its top line from rising interest rates. That being said, its diluted EPS is expected to decrease for the half year and full year. This is most probably due to the increasing number of defaults and bad loan provisions. Investors will also be keeping an eye out for the remediation figure, number of late-stage loans, and free cash flow to determine whether the UK is entering a recession.

Shell (Q2 Trading Update)

Shell (LSE: SHEL) is a British multinational oil and gas company. It is one of the biggest oil and gas firms. And by revenue and profits, it’s one of the largest companies in the world. The giant is set to reveal its Q2 numbers for its three months performance ending June on 28 July. The company’s financial year ends in December.

The earnings preview seems to indicate a top and bottom line improvement to Shell’s business, as last year’s figures were still impacted by worldwide lockdowns. As global travel resumes, investors will be keeping an eye out for future guidance to determine whether analysts estimates can be met for the full year. If so, the Shell share price is expected to stay green for the foreseeable future.

Unilever (H1 Earnings)

Unilever (LSE: ULVR) is a consumer goods conglomerate producing food, condiments, ice cream, cleaning agents, beauty products, and personal care. Its brands include Lynx, Ben & Jerry’s, Dove, and many more. Unilever will be releasing its half-year earnings for its six months performance ending June on 26 July. The company’s financial year ends in December.

While revenue is expected to increase on a half-year and full-year basis, underlying EPS is expected to fall. This is most probably due to high inflation rates that are beginning to take a toll on a global scale, with higher costs impacting the producer’s operation expenditure. Nonetheless, a beat on both revenue and EPS estimates this week could see the Unilever share price push into the green for the year.

The post Earnings preview: Lloyds, Shell, Unilever appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• 3,566 shares in this FTSE 100 stalwart earns a £1,443 second income
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Unilever. 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.

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Rolls-Royce

Rolls-Royce (LSE: RR) a British multinational aerospace and defence holdings company. It is one of the world’s largest maker of aircraft engines, and operates in four different segments. These include civil aerospace, power systems, defence, and new markets. This week, four director dealings were carried out, albeit in small volumes.

• Name: Lee Hsien Yang
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 1,184 @ £0.83
• Total value: £950.59

• Name: Wendy Mars
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 2,198 @ £0.83
• Total value: £1,820.38

• Name: Sarah Armstrong
• Position of director: Chief People Officer
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 147 @ £1.02
• Total value: £149.91

• Name: Rob Watson
• Position of director: President (Rolls-Royce Electrical)
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 147 @ £1.02
• Total value: £149.91

Lloyds

Lloyds (LSE: LLOY) is one of Britain’s biggest financial institutions. Its brands include Lloyds itself, Halifax, and Bank of Scotland. It earns the bulk of its revenue from mortgage loans. A large number of director dealings occurred with Lloyds shares this week.

• Name: Joanna Harris
• Position of director: Interim Group Director
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 296 @ £0.42
• Amount received: 106 @ nil
• Total value: £124.91

• Name: Antonio Lorenzo
• Position of director: Chief Executive Officer (Scottish Widows)
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 355 @ £0.42
• Amount received: 106 @ nil
• Total value: £149.81

• Name: Janet Pope
• Position of director: Chief of Staff and Group Director of Sustainable Business
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 296 @ £0.42
• Amount received: 106 @ nil
• Total value: £124.91

• Name: Stephen Shelley
• Position of director: Chief Risk Officer
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 355 @ £0.42
• Amount received: 106 @ nil
• Total value: £149.81

• Name: Andrew Walton
• Position of director: Group Corporate Affairs Director
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 71 @ £0.42
• Amount received: 105 @ nil
• Total value: £29.96

Vodafone

Vodafone (LSE: VOD) is is a British multinational telecommunications company. It predominantly operates services in Asia, Africa, Europe, and Oceania. A significant director exercised their options to purchase Vodafone shares this week.

• Name: Nick Read
• Position of director: Chief Executive Officer
• Nature of transaction: Purchase of shares (Vodafone Sharesave Plan)
• Date of transaction: 11 July 2022
• Amount bought: 22,352 @ £1.01
• Total value: £22,499.52

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s dealings, directors at Rolls-Royce opted to purchase shares under a share purchase plan. This is a form of capital raising by Rolls-Royce which offers shareholders the opportunity to apply for new, additional shares.

As for Lloyds, the director dealings occurred with partnership shares and matching shares. Partnership shares give employees the opportunity to buy shares via deductions from their salary, before tax deductions. But where partnership shares are offered, the company can also offer matching shares, as was the case. This can range up to a maximum ratio of two free matching shares per partnership share purchased. Nonetheless, it’s important to note that matching shares must normally be held in a trust for at least three years, and held for five years in order to receive a full tax relief. However, these shares may be forfeited if an employee withdraws their partnership shares from the trust.

Finally, in the case of Nick Read, the CEO exercised his options to purchase shares under the Vodafone Share Save Plan. These options are exercisable five years from the savings contract start date, provided that the required monthly savings were made.

The post Director dealings: Rolls-Royce, Lloyds, Vodafone appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Vodafone. 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.

The Lloyds (LSE:LLOY) share price is suffering along with other top finance shares in the UK. Rampant inflation is forcing global economies to raise interest rates. Today, news broke that the US government is considering another increase after it rolled out its largest hike in 28 years just last month. Here in the UK, the Bank of England has suggested that inflation could hit 11% in October.

And now, a new Covid lockdown in China is rekindling concerns from 2021. This could trigger another mini-collapse, causing shares to dip further. But I think preparing for a crash is the best investing strategy I have learnt in the last two years. Given the current economic climate, should I consider adding cut-price Lloyds shares to my portfolio if markets slide further? 

The bull case 

Yes, interest rate hikes mean banks will generate more cash on past and future loans. And for Britain’s largest lender, this is a welcome boost. And the recent analyst estimates for Lloyds look flat but I also see some positives. 

Currently, the estimates suggest that overall annual revenue from 2022-26 will remain between £4.5bn and £4.7bn. This tells me that the overall cash flow could remain stable, which is a good sign for Lloyds’ dividend. And Lloyds shares receive high investor interest throughout the year, largely thanks to its robust 4.75% dividend yield. 

Another positive I see over the next few years is an increase in business loans. Historically, periods of inflation have led to higher rates of borrowing among small and medium-sized businesses. And this ties in well with free cash generated. The Lloyds dividend has an earnings cover of 3.7 times, which is a strong sign that the company can sustain its current yield. And given the estimates for the next few years, I think I can expect a steady payout from Lloyds shares, which would make it a bargain on paper.

The bear case

While banking stocks stand to earn from more than one source, increased interest rates are not a good sign for the UK economy. Consumer goods brands are already seeing smaller baskets and measured spending as budgeting becomes a priority. And the housing boom in the UK looks like it is slowing down. This is bad news, particularly for Lloyds shares. 

We could just be entering a cyclical housing bear market in the UK after a decade of high demand. Lloyds bank earns a major chunk of its revenue from housing mortgages and it also recently invested in residential plots in the UK. This move could easily backfire with a housing collapse. And the Lloyds share price could fall as a result, which puts my investment at risk of falling into a value trap. 

The current instability is a big red flag for me and is keeping me from investing in any finance share in the FTSE 100. Yes, I think Lloyds is a strong business that will continue to generate cash for the foreseeable future. But other exciting areas are cropping up in the UK that could be better for my portfolio. I am looking at some top UK energy and tech shares right now. And I am steering clear of Lloyds and other finance stocks at the moment while looking for signs of a recovery.

The post At 42p, are Lloyds shares a bargain or a value trap? appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Suraj Radhakrishnan 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.

Lloyds (LSE: LLOY) shares have underperformed throughout the first half of 2022. Down 15% year-to-date, the share price is currently sitting at an underwhelming 42p. Broadening the time horizon to 12 months, Lloyds stock has fallen over 7% in value. In today’s weak market, I’m on the lookout for hidden gems – is Lloyds one of them? Let’s take a look.

A double-edged sword

Interest rates are rising in the UK and are pivotal for the way that Lloyds conducts its business. The Bank of England is raising rates to combat red hot inflation, which reached 7.9% year-on-year in May. Inflation has come after a boom in spending, mainly fuelled by the government’s fiscal stimulus to ease the pandemic’s economic impact.  

Higher interest rates should slow down consumer spending. But while this should also slow down inflation, it can plunge the economy into recession. If a recession happens, it could be bad news for Lloyds. It could result in less mortgage lending — something the UK’s biggest mortgage provider would want to avoid.

The cost-of-living crisis is also weighing on everyday spending and could put pressure both on customer willingness to take out new loans and on their ability to make existing loan repayments. Lloyds voiced its concern regarding a rise in potential loan defaults in its Q1 2022 update, so this risk seems like a real possibility.

However, a positive of higher rates is that it can charge higher rates on its loans. In addition to this, for the first three months of 2022, the bank’s loan book reportedly grew by over £3bn, while mortgages rose just under £2bn. If the bank’s loan volumes are growing, and the rate at which it can charge interest on these loans is also going up, then Lloyds could be in a good place.

Lloyds shares valuation

The shares are currently trading at a modest price-to-earnings (P/E) ratio of 5. This is well under the ‘value’ barometer of 10. It’s also comfortably under the UK average bank P/E ratio of 8.8, signifying the shares might be undervalued.

At 42p each, the stock yields a 4.7% dividend, which would be some nice passive income for my portfolio. In addition to this, City analysts have predicted a steady rise in dividends over the next few years. In 2023 and 2024 the dividends are expected to be 2.6p and 2.8p, respectively. If I bought some shares at today’s price of 42p, that would land me some healthy yields of 6.1% and 6.7%.   

The verdict

I think Lloyds shares look cheap and the dividend does entice me. However, with so much uncertainty regarding the UK economy, I’m not convinced about buying the stock just yet. Rising rates could help Lloyds, but could also hinder its performance if loan defaults grow. Only time will tell. For that reason, I won’t be buying the shares today.

The post Lloyds shares are down 15%: should I buy now? appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Dylan Hood 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.

Having risen 31% in 2021, the Lloyds (LSE: LLOY) share price is on its way back down. The stock dropped below 50p in late February and is now at risk of entering the 30p-40p range. With a potential recession on the cards, this could be a possibility.

Interesting developments

In theory, bank stocks should benefit from interest rate rises. This is because they can charge higher interest rates for lending money, thus giving them higher margins. And because of Lloyds’ healthy reserves, it’s been able to keep interest rates it pays out for savings accounts at an all-time low, while charging customers more for loans. As such, I would normally expect its share price to rally. Nonetheless, the opposite has happened. So, why’s that been the case?

The roof’s caving in

In its last trading update, the bank included a table that consisted of prudent economic scenarios. It listed several conditions that have to be met in order for the company to benefit from rising interest rates.

Based on the current economic data and forecasts, Britain’s biggest bank has some upside potential. GDP for 2022 is set to be in line with or better than its various scenarios at 3.5%. Interest rates are expected to increase by more than 1.39%, and the unemployment rate should remain below 4%. However, that’s where the positives end.

The Bank of England (BoE) expects inflation to peak at 11% this year. But more importantly, both the Halifax and Rightmove‘s house price index have indicated that house price growth is beginning to stall. If this continues, it would fail to meet Lloyds’ projections of HPI growth and CRE price growth, endangering its projections. Given that most of its revenue stems from property-related loans, a slower home loans market could offset potential gains from higher interest rates.

Handouts in jeopardy

The FTSE 100 firm currently has a dividend yield of slightly more than 4%, which is above the index’s average. If I’d bought in hopes of a bigger payment at the next declaration date as a result of better margins, I could be disappointed.

Earlier this week, the BoE released its latest Financial Stability Report. It said UK lenders appear to be resilient. Nevertheless, major UK banks would have to set aside more cash to absorb any shocks in the financial markets from next year.

Lloyds will have to raise its buffer for bad debts. The group had already set aside £178m to cover potential customer defaults in Q1, but this is set to increase due to the BoE’s guidance. Consequently, I think its dividend payments might not increase by a huge margin. I could be wrong though. Analysts are forecasting its dividend to grow by 16.1% in the coming year. This may earn me some passive income if I were to invest.

For me, investing in Lloyds is like investing in the British economy and its property market. Economic projections from the World Bank and OECD are less than bullish for the UK currently. Then there’s sky-high inflation and a potential housing market decline that won’t do Lloyds’ top line much good. For those reasons, I won’t be investing in Lloyds shares, as I think its share price could drop below 40p soon.

The post Is the Lloyds share price about to dip below 40p? appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

John Choong 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.

Lloyds

Lloyds (LSE: LLOY) is one of Britain’s biggest financial institutions. It earns the bulk of its revenue from mortgage loans. This week, a large number of director dealings occurred with Lloyds shares going both ways.

• Name: Charlie Nunn
• Position of director: Chief Executive Officer
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 312,313 @ £0.43
• Total value: £135,843.66

• Name: William Chalmers
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 149,910 @ £0.43
• Total value: £65,204.85

• Name: Antonio Lorenzo
• Position of director: Chief Executive Officer (Scottish Widows)
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 148,661 @ £0.43
• Total value: £64,661.59

• Name: Antonio Lorenzo
• Position of director: Chief Executive Officer (Scottish Widows)
• Nature of transaction: Disposal of shares
• Date of transaction: 22 June 2022
• Amount sold: 150,000 @ £0.44
• Total value: £65,457.30

• Name: Vim Maru
• Position of director: Retail Group Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 148,661 @ £0.43
• Total value: £64,661.59

• Name: David Oldfield
• Position of director: Commercial Banking Group Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 145,746 @ £0.43
• Total value: £63,393.68

• Name: Janet Pope
• Position of director: Chief of Staff and Sustainable Business Group Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 104,104 @ £0.43
• Total value: £45,281.08

• Name: Stephen Shelley
• Position of director: Chief Risk Officer
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 147,828 @ £0.43
• Total value: £64,299.27

• Name: Andrew Walton
• Position of director: Group Corporate Affairs Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 104,104 @ £0.43
• Total value: £45,281.08

Taylor Wimpey

Taylor Wimpey (LSE: TW) is one of the UK’s biggest residential developers. Both the Taylor Wimpey CEO and Chairman bought a large sum of Taylor Wimpey shares this week. This course of action hopes to shore up investor sentiment amid slowing house price growth.

• Name: Irene Dorner
• Position of director: Chairman
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 21,750 @ £1.15
• Total value: £25,016.20

• Name: Jennie Daly
• Position of director: Chief Executive Officer
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 21,509 @ £1.15
• Total value: £24,812.57

Berkeley

Berkeley (LSE: BKG)  is another one of Britain’s biggest housebuilders. The FTSE 100 firm reported a decent set of results this week. However, this wasn’t enough, as the Berkeley share price slid downwards. Nonetheless, a large set of director dealings and institutional buying amounted to millions of pounds in Berkeley shares. This should boost investor sentiment in the long-term, despite slowing house price growth.

• Name: William and Jane Jackson
• Position of director: Non-Executive Director and Person Closely Associated to Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 16,148 @ £36.57
• Total value: £590,566.42

• Name: Robert Perrins and Vanessa Perrins as Trustees of the Robert Perrins Discretionary Settlement
• Position of director: Person(s) Closely Associated to Rob Perrins (Berkeley Chief Executive Officer)
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 50,000 @ £36.57
• Total value: £1,847,644.75

• Name: Michael Dobson
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 4,000 @ £36.17
• Total value: £144,686.56

• Name: Julia Barker
• Position of director: Person Closely Associated with Glyn Barker (Berkeley Chairman)
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 1,950 @ £37.27
• Total value: £72,669.37

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this instance, most of the director dealings at Lloyds occurred with free shares. These shares were acquired by directors under the Lloyds fixed share award scheme. Share award schemes give employees actual shares rather than share options. The value of shares given to directors here are treated as employment income. This means that they may be subject to tax and national insurance contributions. That is unless they opt for an HMRC-approved share scheme, which has its own rules and requirements.

The post Director dealings: Lloyds, Taylor Wimpey, Berkeley appeared first on The Twelfth Magpie.

More reading

• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• Is there any value left in Lloyds shares now they’re over £1?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
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John Choong has no position in any of the shares mentioned at the time of writing. 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.

The FTSE 100 index is dangerously close to the 7,000-mark right now. But since mid-2021, the Footsie has risen strongly every time it has touched or dropped below 7,000. And this could be the case with the latest mini-crash as well.

And I see this as an opportunity to pick up some bargains just before the bounceback. With the Lloyds (LSE:LLOY) share price on top of my watchlist, does the latest crash present a buying opportunity? Let’s find out. 

Does the Lloyds share price offer value? 

The banker is currently trading at 44p, with a price-to-earnings (P/E) ratio of just 5.4 times. And Lloyds shares come with a dividend yield of 5.8%, making it an incredibly undervalued penny stock on paper. Given its high year-on-year cash flow, the black horse bank could be a top passive income investment for my portfolio. But in the current economic climate, some analysts see the Lloyds share price as a value trap.  

A value trap is any share that appears cheap but the long-term growth, industry health, and future returns do not meet expectations. And economic instability makes it a tough market for financial institutions to maintain a stable income. The national inflation rate touched a 40-year high of 9.1% today and the Bank of England expects inflation to hit 11% later this year. And this could trigger another hike in interest rates

But does this make the Lloyds shares a value trap? I don’t think so. Yes, interest rate hikes could deter individuals from borrowing. But it also means that Lloyds will earn a steeper interest on the loans it has already approved. Being the largest lender in the UK, Lloyds lent £16bn just to first-time homebuyers last year. Also, small and medium-sized businesses will be forced to borrow to keep inflation costs off consumers and retain market share.

And the board expects strong cash generation going forward, in line with the bank’s progressive dividend strategy. The focus on shareholder returns means I can expect a decent yield from the cash-rich banker. And using a dividend reinvestment strategy could generate long-term wealth for my portfolio. If I buy more Lloyds shares with every dividend payout, the returns over time could multiply.

Other factors to consider 

Although I was optimistic about Lloyds’ decision to purchase housing real estate in the UK until recently, the latest developments show that the UK real estate market is finally slowing down. 

The housing market is highly cyclical and periods of low customer activity last several years. Over the last couple of months, housing prices across the US, Canada, and New Zealand have started falling. Estimates suggest a 20% fall in prices in the UK by next year. This means smaller loan amounts and interest payments for UK’s largest housing mortgage lender. 

However, the bank offers a robust dividend backed by a strong history of cash generation. And when the UK economy does recover, banking stocks could take off. This gives the Lloyds share price some growth potential as well. And given the high yield, Lloyds shares could become a strong cash generator for my portfolio. Given these factors, 44p does look like a strong bargain to me. But I’m tempted to wait to see if there is a further fall in share price before investing.

The post At 43p, is the Lloyds share price a bargain after the latest market crash?  appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Suraj Radhakrishnan 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.

Can the Lloyds share price explode?

The whole finance sector is under scrutiny right now, with whispers of a recession and larger economic struggles underway globally. With inflation at a 30-year high of 7%, the UK economy is still firmly under the pandemic cloud. Earlier this month, the Bank of England (BoE) raised base interest rates up to 1%, the highest level in 13 years, to tackle this problem.

This could be a tricky period for financial institutions in the country. But I do not see Lloyds shares as a growth option at all. Any ‘explosion’ in share price will be a welcome bonus to my potential investment. But I am looking at the banker purely as an income option. 

Dividends and pointers

Lloyds shares come with a dividend yield of 4.3% at the current price of 45p. And the firm has steadily brought in cash from operations year on year. Being the biggest mortgage lender in the UK, Lloyds saw loans and advances to customers jump to £448.6bn in 2021, up £8.4 billion from 2020. Customer deposits went up £25.6bn to £476.3bn in the same period. 

This steady influx of means the bank almost always has a huge pile of liquid cash. The current yield is covered 3.7 times by earnings, which is a good sign for future dividends too. The board decided to roll out a share buyback worth £2.0bn, which is a sign that Lloyds shares will continue to be a steady dividend payer. 

And I wrote about Lloyds’ decision to invest in real estate in October. Through a partnership with UK’s largest real estate developer, Barratt Developments, Lloyds aims at owning 10,000 properties in the UK by 2025 and 50,000 by 2030. 

I am very bullish on the UK housing market. Even though analysts expect it to slow down, I think the pullback will be minimal. As people chase stable investments, I think housing will become a very important asset for young professionals. And by monitoring Lloyds shares’ performance, I think I can get crucial pointers to the health of the housing market and the larger UK economy.

My concerns and verdict 

Rising inflation and slowing global economies are a big concern right now. Big investors are pulling money out of foreign markets, which points to a fear of a recession. This could severely cramp the spending power of the average citizen. And interest rate hikes could force consumers to rethink house purchases now, slowing down real estate sales temporarily.

But I think Lloyds shares are a great dividend and the bank will likely continue to generate liquid cash even in a recession. And given its high trading volume and focus on real estate, I think Lloyds shares will allow me to judge market movements over the next decade. This is why the bank is high on my list of UK income plays.

The post At 45p, are Lloyds shares a no-brainer buy? appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Suraj Radhakrishnan 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.