The Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price has been no higher than approximately 89p in the last 5 years. However, this does not necessarily mean that the Lloyds share price has a ‘ceiling’ at that level.
In my opinion, the Lloyds share price could rise to a higher high than in the last 5 years based on the improvements it is making to its business, its valuation and its income potential.
In the last 5 years or so, Lloyds has made fundamental changes to its operating model. It has reduced costs and made asset disposals to simplify the business. This has led to a relatively low cost to income ratio, which may have been a factor in its improving share price performance.
In my opinion, there is scope for further improvements in its cost to income ratio. Lloyds is still targeting reduced costs, and in its most recent update it discussed a target of lowering its cost to income ratio yet further. Although there may not be the scope for the same kind of improvement as in the last 5 years, improvement nevertheless could lead to a higher share price in my view.
I’m also optimistic about the Lloyds share price because of its valuation. It has a prospective P/E at the moment of approximately 10. In my view, this is relatively low even in a banking sector which I feel offers value potential. If Lloyds was to rise to 100p per share, it would equal a prospective P/E of just under 14. In my view, that is not high on a relative basis.
I’m also bullish about the Lloyds share price because of its income potential. It has a dividend yield of 5.2% using forecast FY2017 DPS of 3.66p. This could become a more significant point of interest for investors if CPI inflation keeps rising. Therefore, I think Lloyds could gradually become a more popular income share over time. This could act as a catalyst on its share price to my mind.