The Lloyds Bank (LSE: LLOY) share price is up over 30% in a year. That in itself was reason for me to consider buying the stock. It was hardly the only reason, though. I think 2022 is going to be the year for the FTSE 100 stocks that were so badly impacted by the pandemic, they have yet to catch up. Think of segments like travel, hospitality, and, of course, banks.
Profits soar
Even with all its increase in the past year, Lloyds Bank is still trading around 15% below those pre-pandemic levels. And this is at a time when the winds are really turning in its favour. Consider its latest results released earlier today. The company has reported a massive 324% increase in post-tax profits. Admittedly, much of this is due to an impairment credit as opposed to a significant impairment charge set aside last year, now that the worst of the pandemic is behind us.
However, even if I consider profits before accounting for impairment charge or credit, the bank is still slightly ahead this year compared to 2020. This is because of higher net interest income, which is quite likely rising as the macroeconomic environment becomes healthier. Also, interest rates are rising. The bank’s net interest margin has risen by two basis points (bps) in 2021 from the year before. It is expected to rise even further, by six bps in the next year. In other words, it is possible that its earnings will continue to improve even without the help of the impairments head.
Lloyds Bank share price dips
Yet, the FTSE 100 bank’s share price continues to be relatively low. This is especially true today, when Russia has invaded Ukraine, leading to a market correction. I think the true impact of the bank’s results on the price, for this reason, has also not surfaced. As I write, its share price has fallen to 47p, which translates to a price-to-earnings (P/E) ratio of six times. This is just a bit ahead of the Barclays P/E at 5.3 times. But both of them look like good buys to me for this reason.
Macro-positives for the FTSE 100 stock
I particularly like the post-Brexit context in which Lloyds Bank operates. The brakes have been slammed hard on growth for the UK and its stock markets for a long time, first because of the Brexit limbo and then the pandemic. Now both are, hopefully, out of the picture. Inflation is of course a key concern for 2022. If it continues to rise, which is possible now that oil has touched $100 a barrel, it is bad news for the global economy. And the bank, being a cyclical stock, is very likely to be impacted by it. But for now, inflation is actually a positive for Lloyds, sending interest rates higher and quite likely increasing its income. It is for these reasons that I bought Lloyds Bank shares.
The post I just bought Lloyds Bank shares. Here’s why appeared first on The Motley Fool UK.
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Manika Premsingh owns Lloyds Bank. The Motley Fool UK has recommended Lloyds Banking Group. 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.
