Is Lloyds share price about to explode?

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Image: Lloyds Banking Group

the Lloyd’s (LSE:LLOY) The share price has seen quite disappointing growth so far throughout 2022. Over the past 30 days, shares have fallen just under 9% and since the start of the year, the shares are down 8%. However, over the past year Lloyds share price has risen 9% and there are a number of reasons why I believe the share price could rise further over the next 12 months .

The bullish case for Lloyds share price

There are three main reasons why I think the Lloyds share price could experience strong growth in 2022.

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First, property prices have been rising steadily and currently show no signs of slowing down. Although interest rates are rising, which means mortgages are becoming more expensive, house prices have continued to climb. Lloyds is the UK’s largest mortgage lender, so this continued growth should work in Lloyd’s favour.

Second, Lloyds has pledged to become the UK’s largest private landlord under a new venture called Citra Living. The bank would try to buy 10,000 homes by 2025 and 50,000 over the next decade. If the 2025 target is met, this would give Citra Living a portfolio of £4 billion, larger than the UK’s current largest landlord, Grainger, who has a property portfolio worth of £2.1 billion.

Along with Citra Living, the bank announced that it would begin to expand its business into the wealth management and investment banking divisions again. This will give the bank greater international exposure and add additional sources of profit generation.

The final reason I like Lloyds share price is because of its valuation. Lloyds is currently trading on a price-to-earnings (P/E) ratio of 6.1. This is significantly lower than the FTSE100 average of 15. In addition to the very low valuation, Lloyds shares are posting a strong dividend yield of 4.3%, again above the FTSE 100 average. These metrics make the share price Very attractive Lloyds in my opinion.

Interest rate: a double-edged sword

As mentioned, interest rates do not yet affect house prices. Rising rates allow Lloyds to charge more on its loans, which will help boost revenue. However, as rates rise, the economy will shrink as people spend less. This could negatively affect Lloyds as it could also prevent people from taking out loans.

Additionally, with skyrocketing energy prices, Loyds faces the risk that businesses and households will not pay their mortgages and rents. If so, it could put a damper on Lloyds share price growth.

The verdict

Overall, I think Lloyds shares could be a great addition to my portfolio at the current price. The only concern I have for equities is how interest rates might affect demand for mortgages. However, I think this is offset by low valuations and exciting expansion.

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