Lloyds‘ (LSE:LLOY) share price remains one of the FTSE 100‘s greatest success stories of the last year. It’s up a whopping 61% in value, more than three times the broader Footsie’s 20% rise. The question is, can the Black Horse Bank keep galloping higher?
City forecasts suggest it will — 18 analysts who rate Lloyds have a 12-month average price target of 117.2p on its shares. That implies a 15% increase from current levels.
That’s lower than we’ve seen over the last year, but isn’t anything to be sniffed at, in my view. With predicted dividends combined, that suggests a total return above 19%.
One analyst thinks the bank could deliver far better returns that this. Their 12-month price target is 131p, up 29% from today.
Could Lloyds really hit these heights? Here are five reasons why it may.
5 price drivers?
There’s no doubt about it, the UK economy’s in the doldrums. Growth was just 0.1% in Q4, latest Office for National Statistics (ONS) data shows. Yet Lloyds continued to impress, its pre-tax profit rising 12% in 2024.
Things could get even better over the next year too, if the Bank of England (BoE) keeps slashing interest rates. Not only could this lift the top line as people take out more loans and spend on discretionary financial services but it might lead to a huge reduction in loan impairments. The bank’s top and bottom lines will, of course, also receive a boost if the British economy picks up speed.
Speaking of costs, signs of progress with its ongoing restructuring drive could also boost Lloyds’ share price. It announced last week the closure of another 95 branches as it looks to cut expenses and pivot more closely towards digital.
Investor confidence over the motor finance mis-selling scandal has also improved in recent months. The FTSE bank has set aside £1.95bn to cover financial penalties, but hasn’t raised provisions since the autumn.
Finally, Lloyds could receive a boost if it continues making substantial share repurchases, underpinned by its robust balance sheet. It announced further buybacks of up to £1.75bn in January and said it “will now review excess capital distributions in addition to the ordinary dividend every half year“.
Are Lloyds shares a Buy for me?
The problem is a lot of these scenarios are far from guaranteed. Weak consumer and business confidence, trade frictions and weak productivity are just a few challenges to economic growth. An inflationary upturn could also see the BoE fail to cut rates as expected. It’s also worth noting that interest rate reductions aren’t a clear-cut positive — they also play havoc with banks’ margins.
It’s possible the motor finance saga could throw up some fresh surprises. Barclays‘ decision to raise its own impairments by £235m last week shows the issue’s far from done and dusted.
And it’s important to remember how expensive Lloyds’ shares are. Its price-to-book (P/B) ratio is 1.5, miles above the long-term average of 0.9. A reading like this could limit scope for fresh share price gains. It could even cause a sharp price retracement if news flow sours.
The FTSE 100 bank may be worth consideration from more optimistic investors, but I won’t be adding it to my own portfolio.
