Lloyds Bank’s share price has dropped by around 13% last month, at the lowest level the bank has seen in six months. This followed a ruling by the Court of Appeal which stated that paying commissions to car dealers for loans was unlawful. As a result, the bank might have to face up to £3.9bn of costs.
During this period, the valuation of Lloyds dropped from £38.3bn to £32.9bn. However, the stock has a low P/E ratio of 7.5 and is one of the largest retail banks in the UK. Lloyds has a competitive edge in the UK and will continue to generate higher margins from lending due to interest rates remaining high.
Furthermore, the stock is undervalued by 55% when assessed with a DCF model. This, coupled with the £3.9bn in costs being the worst case scenario, could mean this may be a good investment opportunity to dip into.
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