See the mighty fallen. With Lloyds Banking Group (LSE: LLOY) now trading atjust 75p a share, it is quite astonishing to remember justhow much it costin the past. Back in 1999, you would have paida mind-boggling 976p thats 13 times todays share price.
We all know what did most of the damage: the financial crisis would have destroyed Lloyds if the taxpayer hadnt stepped in. But the decline beganbefore then. In the months before the credit crunch, Lloyd was trading at around 591p, well below its pre-Millennium highs.
Higher Than The Sun
When Lloyds hit its all-time high it wasovervalued by traditional metrics, trading at around 21 times earnings, but it wasnt that overvalued. As my Foolish colleagueRupert Hargreaves haspointed out, in 1999 Lloydsposteda profit attributable to shareholders of 2.5 billionand had5.5 billion shares in issue, which equalledearnings per shareof 46.2p.
Today, it has more than 71 billion shares in issue, so would have to produce a profit of nearly33 billion to match that earlier EPS figure. With underlying first-half profits of 4.38 billion, Lloydsclearly has to goa long way to recapture its former glories.
Float On
Lately it has been stuck in first gear.Over the last two years, the Lloyds share price has hardly budged at all. A combination of the government selling off its stake, continuing mis-sellingprovisions, and wider economic uncertainty have plugged its comeback fornow. One number does look more intriguing as a result: Lloyds trades at just nine times earnings today, andcan hardly be described as overvalued.
Its share price may prove sticky between now and the retailflotation next Spring, whenprivate investors will get an upfront incentive to buy Lloyds. But once government ownership is concludedand open road will lie ahead of it, andit might be time to Lloyds to kick on again.
British Pluck
One big attraction is that Lloyds has cut back on its riskier global operations to focus primarily on the UK retail market. The result should be a safer, more transparent business. With the UK booming, Lloyds has certainly picked the right market, but wewont always be outgrowingthe G7. Future revenues will depend onswings in the British business cycle.
EPS growth may be a steady 5% this year but it is forecast to fall 6% in2016, suggesting further progress will be bumpy. That shouldnt deter long-term investors who favour dividends over growth. Lloyds yieldsjust 1% today, but payouts should rapidly accelerate from here, and itshould top 5% or 6% by 2016.
Given how far Lloydshas to travel to recapture its all-time high, I suggest investors set themselvesmore modest investment targets. Frankly, Lloydswill probably *never*get there again, inany foreseeable timeframe. But at todays tempting valuation it should prove a highly rewarding investment anyway.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.