Lloyds (LSE:LLOY) shares have been on a rampage lately. Over the last 12 months, the stock has enjoyed a 52% rally, climbing to its highest point since 2018. To put that into perspective, a £5,000 investment in March 2024 is now worth £7,600. That’s not bad, considering the FTSE 100 is only up 15% over the same period.
But looking at the business today, can the Lloyds share price continue to climb from here? And how much money could investors make over the next 12 months if they buy £5,000 worth of shares right now?
What’s behind the momentum?
Despite the Bank of England beginning to cut interest rates, Lloyds has continued to deliver fairly robust earnings for shareholders. Overall, the net interest margin for 2024 still dropped, but in the second half of the year, some improvements emerged.
With excess capital at hand and a relatively cheap-looking valuation, management took the liberty of launching a £1.7bn share buyback scheme as well as boosting dividends by a welcome 15%.
At the same time, more cash could soon be flooding the balance sheet as management reduces its target CET1 from 13.5% to 13% by the end of 2026. This effectively reduces the amount of reserves Lloyds has to hold in case of an economic crisis. A 0.5% reduction doesn’t sound like much. But for a bank like Lloyds, it roughly equates to £1.1bn in extra capital to work with each year without compromising depositors should the economy decide to throw a tantrum.
Needless to say, this is terrific news for shareholders. And seeing positive upward momentum in Lloyds shares makes sense.
Where do I think the Lloyds share price will be in a year?
Forecasts are notoriously tricky to get right. But looking at the latest analyst projections, if everything continues to go well for this business, Lloyds shares could sit at around 90p by this time next year. In this scenario, a £5,000 investment today would grow to £6,220.
However, not everyone is convinced, with one analyst projecting that shares could tumble back down to around 60p over the same period. If that were to happen, then a £5,000 investment today could actually drop to a value of just £4,150.
So, which projection is correct? The uncertainty surrounding the near-term performance of Lloyds shares largely boils down to the upcoming court case regarding undisclosed motor finance commissions.
Management had previously set aside £450m to cover the cost of settling the scandal should the Supreme Court rule against the bank. However, in the latest results, this reserve was increased to £1.15bn. And some analyst projections indicate that the actual cost could be even higher.
Time to buy?
At a price-to-earnings ratio of 11.6, Lloyds is by no means an ‘expensive’ stock, even after its recent rally. However, its fate, at least in the short term, appears to be tied to the upcoming court ruling in April.
Investing in businesses that lack control over their own destiny isn’t something I’m particularly keen on for my portfolio. Therefore, I’ll be sitting on the sidelines for this one. Instead, I’m searching for other opportunities within the financial sector that don’t have such a large cloud of uncertainty hanging over their heads.
