After profits plunge 28%, should investors consider buying Lloyds shares?

Lloyds (LSE:LLOY) shares were down a few percent in morning trading (24 April) following the release of the bank’s first quarter results.

The stock has been gaining momentum in recent times. Yet after rising 24.8% in the last six months, its latest update may have thrown a spanner in the works.

Now sitting around the 52p mark, could this present an opportunity for investors?

An overview

Before I answer that, let’s take a look at the results.

What caught the attention of investors the most was a 28% fall in profit. For the three months to 31 March 2023, pre-tax profit fell to £1.6bn, down from £2.3bn a year ago.

The bank pinned this down to a lower net interest income and higher costs. Its net interest margin fell to 2.95% from 3.22% a year ago while operating costs rose 11% to £2.4bn, in part due to a new sector-wide Bank of England (BofE) levy.

Not all bad news

Despite that, there were positives. For example, Lloyds took an impairment charge of just £57m. That’s considerably lower than the £280m analysts had predicted and highlights the resilience of its borrowers.

Despite a competitive mortgage market harming profits, the housing market seems to be showing small signs of hope.

British house prices in March rose at their fastest annual pace since December 2022. Lloyds now expects house prices to increase by 1.5% in 2024. Before, it had predicted a 2.2% fall.

What now?

So, where does the release leave investors?

Well, I think now could be a smart time to consider snapping up some shares. It seems like banks have been held back by negative market sentiment more than anything in the last year or so. In all fairness, this may continue in the months to come.

For example, Huw Pill, the BofE’s chief economist, recently dampened hopes of a rate cut in the summer, reinforcing concerns about inflation rising once again.

We’ve also seen higher-than-expected inflation figures across the pond, which will impact the European interest rate outlook. Any sign of further setbacks could harm the stock’s price.

However, looking past that, I see better times ahead. Lloyds Chief Financial Officer William Chalmers stated he expects pressures on margins “to ease through 2024”. Even with recent uncertainty surrounding the BofE’s actions, Lloyds still sees it making three cuts this year.

While cuts will harm margins, they should hopefully provide the wider market with a boost in sentiment that will reflect on the stock in the times ahead.

Good value

The stock also looks too cheap to pass on, in my opinion. Today, investors can pick up shares in the Black Horse Bank trading on just 6.7 times earnings. That’s comfortably below the Footsie average of 11.

To go with that, the stock boasts a 5.5% dividend yield, higher than the Footsie average of 3.9%. Following a strong 2023 performance, the business announced a new £2bn share buyback scheme for this year.

Long-term vision

There may be further volatility with the Lloyds share price in 2024. And there’s a good chance that could spill into 2025.

Nevertheless, I’m holding onto my shares. And if I had the spare cash, I’d happily top up my holdings. I think investors should consider buying some shares.

The post After profits plunge 28%, should investors consider buying Lloyds shares? appeared first on The Motley Fool UK.

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Charlie Keough 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.