The Lloyds (LSE: LLOY) share price has surged this year, buoyed by rising net interest income and an aggressive share buyback programme. But the firm’s exposure to the UK motor-finance redress scheme has turned attention to possible extra provisions.
So, which story will dominate going forward?
Taking a closer look
Up 54% this year, Lloyds shares are currently trading around 84p, with its market cap now well above £50bn.
On valuation metrics, the shares still look ‘cheap’ despite the price growth. Its forward price-to-earnings (P/E) ratio is roughly 11 and its yield is just below 4%. And using a discounted cash flow (DCF) model, the stock appears to be trading at about 36% below fair value.
Together, those metrics should be attractive to both value and income investors. But there are some concerns to consider.
Latest results and redress risk
In its H1 2025 figures, Lloyds showed decent strength. Net interest income held firm and margins remained resilient, while lending and deposit trends held broadly steady.
That gives a base of confidence in its core operations.
The real wild card is the motor-finance redress scheme. Lloyds has already set aside about £1.2bn to cover potential claims. But after the Financial Conduct Authority (FCA) laid out proposals for the industry scheme, the bank warned that additional provisions may be necessary and could be “material“.
The FCA outlined a total estimate of £8.2bn, rising to around £11bn including admin costs. This has raised uncertainty about how much more Lloyds may need to reserve, and how that might squeeze profits or capital ratios.
If Lloyds has to hike provisions, that could lower future earnings per share (EPS) and reduce capacity for share repurchases or dividends. The FCA’s consultation is open until November, and the final rules will set the tone for how much that burden will weigh on the bank.
Buybacks, SPW full takeover, and catalysts
Lloyds has one powerful lever in its armoury — share buybacks. The bank launched a buyback programme of up to £1.75bn, with recent execution seeing over 48m shares repurchased. That helps shrink share count and bolster per-share metrics.
In another key development, it acquired the remaining 49.9% stake in its wealth management joint venture, Schroders Personal Wealth (SPW). That gives it full control and flexibility over the growth of its wealth and advice business.
These initiatives could provide tangible growth potential if the business avoids a large provisioning shock.
Broker views and valuation gaps
Analyst targets are broadly positive, though tempered. Some forecasts suggest modest growth from current levels, and Jefferies recently placed a 12-month target of 103p for the share, banking on continued buybacks and earnings leverage.
Others remain cautious, citing the redress uncertainty as a limiting factor until clarity emerges.
What could move the dial? A clearly defined redress charge, stronger loan growth, and clarity regarding interest rates.
My take and what to watch
For value and income-minded investors, Lloyds remains a stock worth considering — especially given its valuation, buybacks, and SPW purchase. But the redress issue is a key risk: overshooting provisions or regulatory burdens could dampen the story.
In summary, momentum is there but the next move may depend heavily on how big the redress burden turns out to be. Investors should keep an eye on its Q3 trading update and developments following the SPW consolidation.
