How Lloyds Banking Group PLC Is Gearing Up For Growth

Since the financial crisis and its state bailout, Lloyds Banking (LSE: LLOY) (NYSE: LYG.US) has made a remarkable turnaround. 

And 2014 was a landmark year in the bank’s recovery. Indeed, 2014 was the first year that Lloyds’ management could claim that the bank’s turnaround was officially nearing completion. Rising profits and a solid capital cushion confirmed management’s comments.

So, now Lloyds has been stabilised, the bank has laid out some clear growth goals for the years ahead.

Plans for growth 

Lloyds’ main goal is to expand its loan book by £30bn over the next three years, targeting the areas where the bank is currently under represented. As part of this lending drive, the company is looking to increase its net lending to small and medium-sized enterprises by £3bn before 2017.

Additionally, the group wants to increase the value of assets in its consumer finance arm by over £6bn. Key to the growth of its consumer finance division is Lloyds’ new online car finance platform, which allows Halifax internet banking customers to prearrange secured financing for a car they plan to buy.

These initiatives are not the bank’s only growth avenues. Lloyds is the largest mortgage lender in the UK, so the bank is certainly set to benefit from the UK’s electric housing market.

Further, Lloyds’ management has recognised that housing is a key issue for Britain. With this in mind, the bank set up a £50m equity fund for small homebuilders last year, providing equity for construction projects across the country.

Profits surging 

With plans for growth in place, City analysts believe that Lloyds can almost quadruple group net profit over the next two years. Indeed, analysts believe that the bank is set to report a net profit of £5.3bn for full-year 2016, compared to 2014’s reported net income of £1.4bn. Lloyds’ earnings per share are set to hit 8.2p by 2016.

But it seems as if the market is overlooking this projected growth. Lloyds is currently trading at a forward P/E of only 10, which looks cheap — the bank is trading at a 2016 P/E of 9.9.

Then there’s Lloyds’ dividend to consider. The bank’s payout is set to rise over the next few years to around 50% of earnings per share, implying that a payout of 4.1p per share is on the cards for 2016 — a yield of 5.1% at present levels.

The bottom line 

All in all, Lloyds’ recovery is nearing completion and the bank is now looking to the future. Plans for growth are in place and as Lloyds’ profits surge over the next few years, the bank’s share price should follow suit. 

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.