The last time Lloyds (LSE:LLOY) shares traded above £1 was over 15 years ago, prior to the 2008 stock market crash. Since then, the Footsie banking stock has tried desperately to return to its former glory. But sadly, it’s never quite managed to rise above (or even reach) this level.
In retrospect, this isn’t too surprising. Market conditions just haven’t been favourable. After all, for most of the last 15 years, interest rates have hovered near zero, making it difficult for banks like Lloyds to generate a meaningful profit margin.
However, now that rates are near where they were before the crisis, are the shares finally ready to surge?
2025 price forecast
With the Bank of England hiking interest rates, Lloyds’ net interest margin is finally meaningful again. While there are some valid concerns that customers are failing to keep up with the high cost of borrowing, these fears are slowly dissipating now that interest rates have started to fall.
Assuming near-0% rates don’t return, Lloyds finds itself in a relatively comfortable financial position. Recent interest rate cuts have harmed the profitability of its lending activities. However, the change in monetary policy has also boosted the valuations of its investment portfolios. This more than offset the slide in lending performance, translating into a 37.6% boost to pre-tax profits across the first six months of 2024.
Subsequently, management has already achieved its return on tangible equity (RoTE) target, with these latest figures placing it at an impressive 13.3%. In other words, the bank is generating value for shareholders. And with that in mind, it’s not surprising to see analyst forecasts looking increasingly bullish.
The most pessimistic prediction for Lloyds shares over the next 12 months is a 55p price target. That’s actually quite close to where the bank stock trades today. At the same time, a more optimistic outlook suggests shares could reach as high as 76p — roughly 30% higher than right now.
Is the journey to £1 a share a short one?
Analyst forecasts are a useful tool for judging sentiment. But they’re often far from accurate and should be taken with a pinch of salt. The average consensus for Lloyds shares is around 61.5p by this time next year, indicating some positive upside could lie ahead. And while that’s still a far cry from the elusive £1 milestone, it’s an encouraging sign that the shares might eventually return to pre-2008 prices.
However, as with every investment, this company faces certain risks that may delay or even prevent its recovery.
With the bulk of profits stemming from its investment portfolio, it has become quite reliant on the financial markets (bonds and stocks). If the markets throw another tantrum, Lloyds’ earnings and RoTE are likely to suffer.
Demand for its customer lending segment largely depends on economic growth. If the UK’s GDP fails to expand meaningfully over the next few years, growth it will be a challenge.
Lloyds doesn’t appear to have much of a say in its future success. Management is making moves to capitalise on opportunities as and when they appear. But, dependent on external factors beyond its control, it seems a £1 price may be some way off. As such, I’m not rushing to add any shares to my portfolio.
