My Lloyds Banking Group (LSE:LLOY) shares proceed to frustrate me. I’ve held the inventory for a number of years nevertheless it by no means reaches the heights that I (and a few others) assume it ought to.

I’m starting to wonder if the time has come to chop my losses.

Fundamentals

However earlier than making a choice, I believe it’s wise to take a step again and have a look at the financial institution’s underlying value.

A typical approach to worth a monetary establishment is to check its inventory market valuation with its steadiness sheet.

Lloyds’ market cap is presently £25.4bn. And at 30 September 2023, its web property had been £45.0bn. This implies its price-to-book ratio is presently 0.56, implying that the inventory is undervalued.

Put one other manner, if it ceased buying and selling immediately, and all its property had been bought for his or her accounting worth and the proceeds used to pay down its liabilities, there could be sufficient left over to offer shareholders 70.8p a share.

That’s a 76% premium to its present share value.

And the principle motive why I plan to carry on to my shares.

Not alone

But it surely doesn’t matter what I believe. If the vast majority of buyers fail to imagine the financial institution is undervalued, then its share value will proceed to battle.

Nevertheless, I don’t seem like the one one who thinks the inventory value doesn’t replicate its intrinsic worth.

Through the week ended 27 October 2023, on the Hargreaves Lansdown buying and selling platform, 4.21% of all ‘purchase’ offers had been for Lloyds shares, making it the second-most standard.

And plenty of analysts imagine that the share value must be larger. UBS (50p), Financial institution of America (58p), Barclays (67p), and Jefferies (80p), all argue that the inventory ought to change arms for extra.

Rising shareholder returns

However even when the share value doesn’t improve a lot over the approaching months and years, I believe there’s one more reason why I ought to retain my shares: the dividend.

Based mostly on the consensus forecast of 20 analysts, the financial institution is anticipated to pay 2.70p a share in 2023. That’s a present yield of 6.75%.

And its payout is anticipated to extend steadily over the subsequent three years — 3.03p (2024), 3.35p (2025), and three.71p (2026).

In fact, these forecasts may very well be incorrect.

The financial institution is closely uncovered to the UK financial system and, specifically, the home housing market. Inflation and rising rates of interest have broken the nation’s progress prospects. They usually have made proudly owning a house more and more unaffordable.

The Financial institution of England has forecast that the financial system will probably be smaller in 2026 than it was in 2019.

A balancing act

However Lloyds’ earnings are benefitting from larger rates of interest.

Its web curiosity margin — the distinction between the quantity it receives on loans and what it pays on deposits — was 3.15% for the 9 months ended 30 September 2023. For comparability, it was 2.94% in 2022, and a couple of.54% in 2021.

Nevertheless, the draw back of that is the prospect of extra clients defaulting on their borrowings.

I’m going to evaluation my determination to maintain my Lloyds shares after its full-year outcomes are introduced in February 2024.

By then the expansion prospects for the UK financial system will probably be clearer and the dividend for 2023 will probably be confirmed. And hopefully, different buyers can even be satisfied that the financial institution is undervalued.