Lloyds (LON: LLOY) share price continued its underperformance this week as the UK published weak inflation numbers. The stock was trading at 41.45p, much lower than the year-to-date high of 48.33p. It is hovering near its lowest point since November last year.
Focus shifts to next week’s earningsLloyds Bank will be in the spotlight in the next few days as British banks start publishing their financial results. NatWest, the parent company of Coutts and Royal Bank of Scotland (RBS), will publish its results on Friday.
These results will likely set the tone for what to expect in other British banks, especially Lloyds since the two companies are related. Unlike Barclays, NatWest, and Lloyds focuses mostly on retail banking and has no major investment banking and wealth management division.
Lloyds Bank results will come on Thursday next week. These results will provide more colour about the state of the company as inflation remains high and economic growth stumbles. Analysts expect the results will show that the net interest income (NII) rose to £3.36 billion in the fourth quarter while its net income jumped to £4.43 billion.
They expect that the profit for the quarter will be £1.13 billion. If these analysts are correct, the company’s NII for the year will be £13.8 billion. Analysts expect slow growth for the next few years, with this income expected to be £13.2 billion in 2024 and £13.97 billion in 2026.
Its profit is also expected to waver a bit in the next few years. It will be £5.42 billion in 2023 followed by a rop ti £4.4 billion in 2025 and then £4.8 billion in 2025. However, it is relatively difficult to predict these numbers because of the impact of the Bank of England’s (BoE) decisions.
In addition to the headline figures, the Lloyds share price will react to the overall impairment provisions. The expectation is that these provisions will continue rising in the next few years. For 2023, it is expected to come in at £975 million followed by £1.44 billion, £1.42 billion, and £1.47 billion in the next three years.
Lloyds share price outlook
The reality is that Lloyds Bank is a highly undervalued bank. It has a strong dividend yield of 6.2%, which is higher than other European banks like Unicredit and Santander. In terms of valuations, the company has a PE ratio of about 4, which is also lower than these other companies.
However, Lloyds Bank, like the broad UK stock market, has constantly underperformed its global peers and it is unclear whether this trend will change. On the daily chart above, we see that the stock has remained below the 50-day and 25-day moving averages. The two averages have made a bearish crossover pattern while the Relative Strength Index (RSI) and Stochastic have pointed downwards.
Therefore, in this case, the outlook for the stock is bearish and it could move below 40p. On the positive side, it has formed a falling wedge pattern, which is usually a positive sign. Therefore, a bullish breakout cannot be ruled out. If this happens, the shares will likely rebound and retest the resistance at 43p.
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