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The Lloyds (LSE: LLOY) share price is on the rise yet again, up 3.25% as I write (8 October). It’s the fastest grower on the FTSE 100 this morning, as investors digest news they clearly see as positive.
The jump comes after the Financial Conduct Authority set out its plan to charge motor finance lenders £11bn in compensation for unfair practices. Lloyds says it’s assessing the implications, but investors quickly decided the news is broadly positive. The FCA’s new scheme reduces expected payouts per agreement from £950 to £700, which caps a major source of uncertainty for the stock.
Lloyds Banking Group’s performance has trailed some of its peers. Its shares are up 40% over 12 months and 200% over five years, which looks fabulous, until we check the competition.
FTSE 100 banks fly
The Barclays share price is up 65% over one year and 262% over five, while NatWest Group’s up 52% and 338% over the same timeframes. Dividends are on top. The motor finance issue is a key reason, which Barclays and NatWest largely dodged.
Has Lloyds got further to run? I think so, but the pace is likely to slow. On 24 July, we learned that first-half pre-tax profit rose 5% year-on-year to £3.5bn, despite slightly higher operating costs and impairments. Lending and deposits grew strongly, and the income outlook looks strong. But overall, the results were solid rather than stellar.
However, there’s plenty of income in the pipeline, with Lloyds hiking the interim dividend by 15%. Today’s trailing yield is 3.92%, but forecasts expect the income to hit 4.25% for 2025 and 5% for 2026. CEO Charlie Nunn said it’s on course to deliver higher, more sustainable shareholder returns.
Relative sector values
Despite its slower growth, Lloyds is a little more expensive than its close rivals with a price-to-earnings ratio is 13.2. That compares to 10.5 for Barclays and 10.25 for NatWest.
Investors need to be mindful of sector risks. November’s Budget could increase the 3% surcharge banks pay on profits, which would cost FTSE 100 banks around £2bn. Some campaigners are pressing for a new windfall tax that could cost £8bn.
Interest rate cuts, if they come through, would squeeze margins, although lower rates could boost mortgage volumes. These factors make timing tricky, so any decision should consider the long-term rather than short-term noise. On the Fool, we recommend looking past the daily swings, and taking the long-term view.
So what do the experts say? Consensus analyst forecasts give a median one-year target of 92.5p, which is an increase of around 8% from today’s 85.5p. Lloyds isn’t expected to break the £1 barrier yet.
However, combined with projected dividends, this suggests a total return of about 13%. While forecasts aren’t exactly set in stone, this does confirm my suspicion that growth will slow from here.
However, over five to 10 years, I think Lloyds will continue to prove its value as part of a diversified portfolio, balancing income with capital growth potential. And I still think the shares are worth considering today.
