A few short months ago, the Lloyds (LSE: LLOY) share price was bouncing happily along and I was feeling pleased with myself.
Pleased because I’d bought Lloyds shares just before they started to recover. Pleased because I was up about 45% in short order. And pleased that this was both one of my biggest holdings and best performers. I saw that as a happy synergy. I was also pleased with the dividends I had started to reinvest back into the stock. Pleased, pleased, pleased.
I was also relieved, because investors seemed to have dismissed suggestions that the motor finance mis-selling scandal would be the next PPI scandal. That nightmare cost Lloyds more than £23bn in compensation, as well as a heap of reputational damage.
I think this blue-chip bank has been oversold
The board had set aside £450m for motor finance mis-selling, which suggested it wasn’t too worried. But I was. Lloyds holds about £15bn in car loans through its Black Horse division, more than any other.
As a personal finance journalist, I’ve reported on this type of scandal before, and they have a habit of spiralling. Especially with money saving expert Martin Lewis whipping things up.
Things still looked set fair when Lloyds posted a solid set of Q3 results on 23 October. While statutory profits fell 2% year on year to £1.82bn, they still beat consensus forecasts of £1.6bn. CEO Charlie Nunn reaffirmed 2024 guidance.
Then on 28 October, Lloyds updated the market on recent Court of Appeal rulings on motor commission arrangements, and markets finally took fright. It said judges had ruled that lenders were also liable for any non-disclosures by dealers. Fears that the scandal could cost Lloyds £1.5bn suddenly came into sharper focus. Lloyds refuses to put a price on the potential cost, further spooking markets.
We still don’t know about the scandal
Its shares trailed but today they’ve suddenly jumped 3.06% after the Supreme Court agreed that Close Brothers, which has even greater exposure than Lloyds relative to its size, could appeal the motor finance commission ruling. Hope is in the air again.
Today, Lloyds shares look brilliant value with a price-to-earnings ratio of just 6.97%. If the motor finance scandal is settled at a modest cost, they could recover some of their lost value in short order. So should I buy more?
While I’m pleased by today’s jump, I won’t buy more. I don’t like to gamble on the outcome of court cases. So I won’t top up my Lloyd shares today. As for my current stake, I’ll continue to follow my original plan and hang onto them. I haven’t for a moment considered selling.
Lloyds shares have struggled in recent months but that’s neither here nor there, given that I plan to hold them for years and ideally decades. They’ll bounce back at some point. And while I wait, my reinvested dividends could pick up more stock at the lower price.
The post Is the beaten down Lloyds share price set to soar after today’s good news? appeared first on The Motley Fool UK.
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Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.
