Is the Lloyds Share Price Still a Bargain?

Summary:
• Lloyds share price has been in a strong bullish trend in the past few weeks despite the rising concerns about the British economy.

Lloyds share price has been in a strong bullish trend in the past few weeks despite the rising concerns about the British economy. After falling to 38.54p in October, the stock surged to a high of 47.33p last week. The bank’s stock has rallied by more than 20%, making it the best-performing bank in the FTSE 100 this month.

Sensitivity to UK slowdown

Lloyds Bank is a leading British company that provides banking, housing, and insurance solutions. With a market cap of over $37.5 billion, Lloyds is the 18th biggest publicly-traded company in the UK. It has a 51% stake in Schroder Personal Wealth, which sees it provide wealth management business. The company owns 14 brands, including Bank of Scotland, Halifax, and Scottish Widows.

Lloyds Bank has a significant sensitivity to the UK economy since it has little business abroad. Now, with the British economy struggling, there are concerns about the strength of the company. This exposure explains why Lloyds set aside £668 million pounds in provisions for bad debt. Barclays, on the other hand, allocated £381 million. NatWest, on the other hand, allocated £247 million.

On a positive side, banks are required to set these provisions by the latest accounting standards. As we saw in 2021, banks reported high profits as they clawed back most of the cash they had provisioned in 2020 at the height of the pandemic.

Lloyds share price has rallied partly because of the ongoing surge in net interest income (NII). NII, which is the spread between savings and lending rate, jumped by 19% in the third quarter of the year. It accounted for about 74% of its total income. 

Lloyds Bank received a positive rating from analysts at Royal Bank of Canada (RBC). The analysts expect that the shares will jump to 57p, helped by the falling inflation expectations and an increase in deposit betas. 

Lloyds share price forecast

In my report on Lloyds Bank last week, I noted that the shares would jump to about 47p, which was the highest point on October 5. This view was accurate as the stock rose above 47.27p. It has moved above all moving averages. At the same time, the Relative Strength Index (RSI) has been in a strong upward trend and has moved above the overbought level. 

Therefore, the outlook of Lloyds share price is bullish, with the next key resistance level to watch being at 49.90p. This price will be the highest point on September 21. A drop below the support at 45.37p will invalidate the bullish view.