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Yahoo
5 days ago
- Business
- Yahoo
In 12 months, a £10,000 investment in Lloyds shares could become…
High street bank Lloyds (LSE:LLOY) remains one of the FTSE 100's strongest performing shares so far in 2025. Up 42% in the year to date, the Black Horse Bank has swept higher on hopes for interest rate cuts and the subsequent boost this would give the UK economy. The lower the Bank of England base rate, the higher company revenues can potentially climb and the lower the risk from loan impairments. That's the theory at least. But interest rate cuts are a double-edged sword for retail banks. They trim net interest margins (NIMs), a key gauge of profitability that measures the difference between the loan interest banks receive and the amount they pay out to savers. So what are City analysts predicting for the Lloyds share price? And what could a £10,000 lump sum in the Footsie share become a year from now? A total 11.5% return? Today, a total of 17 brokers currently have ratings on the bank, providing a good breadth of opinions. Not all of them are bullish on its share price prospects for the next year, but the consensus is positive, suggesting a 7.1% increase from current levels of 78.2p. If the City's dividend projections also come to pass, buyers of Lloyds shares today could enjoy a strong double-digit return over the next 12 months. Right now the dividend yield here is a FTSE 100-beating 4.4%. This all implies someone investing a £10,000 lump sum today would have made £11,500. That's based on a total annual return of 11.5%. I'm not so sure However, analyst projections often miss the mark. And I have a suspicion that while the bank's dividend forecasts look secure, its share price estimates will fall well short of the forecasts. It's not just because of the impact that more interest rate cuts may have on profits, either. Incidentally, Lloyds' NIMs were already thin in the first quarter, at 3.03%. I'm concerned that revenues and the level of bad loans will disappoint even as the Bank of England gears up for more policy loosening. This reflects the weak state of the British economy, as latest labour data this week underlined. Latest Office for National Statistics (ONS) data showed unemployment hit four-year highs, while job vacancies have continuously fallen since mid-2022. The biggest blow to the bank's share price, however, could be an adverse ruling this month on the motor finance mis-selling saga. RBC estimates Lloyds could face penalties of £4.6bn if the Supreme Court rules 'secret' commissions between lenders and retailers illegal. The bank has set aside just £1.2bn to cover possible costs. A FTSE share to consider avoiding Having said all this, I'm not suggesting the bank's outlook is completely gloomy. Lloyds' share price could rise as its digital transformation plan bears fruit, bringing cost benefits and boosting its competitiveness. It might also increase if it expands its share buyback programme, supported by its strong balance sheet. But on balance, the risks of owning Lloyds shares are too considerable for my liking. I think investors should consider buying other blue-chip shares instead. The post In 12 months, a £10,000 investment in Lloyds shares could become… appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025
Yahoo
22-03-2025
- Business
- Yahoo
Up 36% in a year, could the Lloyds share price move even higher?
The potential gain from owning shares in Lloyds (LSE: LLOY) over the past year has been considerable. During the past 12 months, the Lloyds share price has moved up 36%. On top of that, there is a dividend yield of 4.5%. Someone who bought the shares a year ago at the lower price however, would now be earning a yield of around 6%. Still, with the Lloyds share price still in pennies, might there be further room for increase – and should I invest? To answer the first of those two questions, I do think the share could move even higher from here. The price-to-earnings ratio of 11 strikes me as reasonable, rather than overly expensive. When it comes to valuing banks however, many investors prefer to use a price-to-book value ratio. Here, the picture is less attractive. Not only has the share become more expensive lately using this ratio, it now also looks potentially overvalued, as a ratio above 1 indicates that the share price is higher than the underlying book value. Created using TradingView So why do I think the Lloyds share price could still move higher from here? As the past year's rally shows, many investors have continued to buy into the bank. With a proven business model, strong brands and large customer base in a market with high barriers to entry, I see a lot to like about Lloyds. If it can maintain or improve its business performance, that could help justify a higher share price. An ongoing share buyback programme should also push up both the earnings and book value per share, potentially justifying a higher share price for Lloyds. Despite that however, I continue to avoid the share and have no plans to add Lloyds to my ISA or SIPP at the present time. I recognise the bank's strengths but see challenges from an uncertain economic outlook. Given Lloyds' role as the country's leading mortgage provider, that could eat into profits if loan defaults rise. There are also other risks, such as ongoing costs from a car financing mis-selling scandal. Last year saw the bank's post-tax profit fall by nearly a fifth. Yes, it was still a mammoth £4.5bn. But a fall on that scale does not fill me with confidence about the outlook for the business. Despite share buybacks, the Black Horse Bank's basic earnings per share have moved around in different directions over the past several years. Created using TradingView Those buybacks actually put me off investing, as I think the board would have done better to use spare cash to restore the dividend per share to its pre-pandemic level. Instead, it has dragged its feet for years on this, making me think it does not fully appreciate the importance of the dividend to many investors. Created using TradingView So although I reckon the Lloyds share price may move higher still, I also have concerns about the risks of investing at the current level and have no plans to do so. The post Up 36% in a year, could the Lloyds share price move even higher? appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025
