Will Lloyds’ share price rally in July after ‘freedom day’?

Lloyds’ [LLOY.L] share price has gained a stellar 29.5% since the start of the year [as of 25 June]. At the end of May, the stock burst through the 50p mark - a far cry from April 2020 when Lloyds’ share price plummeted to around 27p as the coronavirus pandemic took hold.

Yet with the initial June 21 ‘Freedom day’ date pushed back to July and cases of the COVID-19 delta variant on the rise, the stock has had a tricky June, dropping roughly 3.5% for the month. So are the gains over for Lloyds’ share price, or could it break the 50p mark once the UK lifts its COVID-19 restrictions?

 

What’s going to drive Lloyds’ share price for the rest of 2021?

Lloyds’ share price got a shot in the arm following strong first-quarter results in April. Pre-tax profit came in at £1.9bn, topping analyst expectations. In the results the bank said it was upbeat on the future of the UK economy, noting that mortgage completions reached their highest levels in March since 2008.

The bank’s CET1 ratio - a key measure of capital - was 16.7%, significantly ahead of the bank’s own targets. While the now tapered stamp duty holiday helped mortgage sales, the bank’s underlying resilience and profitability should reassure investors - especially if another set of confident results are posted for the second quarter.

  

Unsurprisingly, the UK economy remains the biggest potential growth driver. As the UK’s biggest bank, Lloyds’ share price is exposed to macroeconomic events with the recent positivity around the reopening of the UK economy helping push the stock higher. Adding to the optimism is strong PMI and job creation data in June, with expectations that the UK will return to a pre-pandemic GDP in August.

Boris Johnson is due to make a call on whether all restrictions can be lifted on July 19. Should that happen, it may give investors further confidence in the prospects for both the UK economy and Lloyds’ share price.

The push to online banking will continue to be another growth area for Lloyds. Under Antonio Horta-Osório, Lloyds was ruthless in cutting costs and driving efficiencies. This has led to a push towards online banking, while reducing its presence on the high street. In 2020, active online users of Lloyds banking services increased 6.1% to 17.4m, making it the UK’s largest digital bank.

Last week Lloyds announced that it was closing an additional 44 branches this year, bringing the total number closing this year to 100. The branches will close between September and November, and include both Lloyds and Halifax branches.

“Like many businesses on the high street, we must change for a future where branches will be used in a different way, and visited less often” - Lloyds retail director Vim Maru

 

"Like many businesses on the high street, we must change for a future where branches will be used in a different way, and visited less often," Lloyds retail director Vim Maru said.

 

What are analysts expecting for Lloyds’ share price?

Jefferies analyst Joseph Dickerson described Lloyds’ first-quarter results as ‘steller on all fronts’, upping his price target from 45p to 55p - a 16.5% upside on Friday’s closing price of 47.22p. JP Morgan Chase, is similarly bullish on Lloyds’ share price, with a 59p price target to go with its Overweight rating, while Barclays has a 60p per share target.

For income-seeking investors, Lloyds’ final 2020 dividend of 0.57p per share was likely underwhelming considering that pre-pandemic the bank gave away a 2.14p dividend per share in 2018.

However, the pre-pandemic glory days could be coming back, with analysts expecting that Lloyds’ dividend might hit 5.6%, according to UK Investor Magazine. Expect an update on the dividend policy when Lloyds updates the market with half-year results later in the summer.

“For shareholders, the big question is the dividend. Lloyds has built up a formidable capital position over last year and some of that is going to make its way back to shareholders through a new dividend policy to be announced at the half-year” - Hargreaves Lansdown analyst Nicholas Hyett

 

"For shareholders, the big question is the dividend. Lloyds has built up a formidable capital position over last year and some of that is going to make its way back to shareholders through a new dividend policy to be announced at the half-year," said Hargreaves Lansdown analyst Nicholas Hyett in April.

For now, Lloyds’ share price has an average 52p analyst price target, according to Refinitiv data. Hitting this would see a 10.1% upside on Friday’s closing price of 47.22p. At the top end, there’s a 60p price target, while the most bearish target is 40p.