Lloyds shares worth 70p say analysts
Peel Hunt analysts have raised their price target on Lloyds shares by 17 per cent to 70p and slapped a ‘Hold’ rating on the FTSE 100 lender.
The analysts cited strengthening income trends and reduced sensitivity to interest rates as the top factors driving the bank’s “top-line performance.”
The banking giant‘s full-year profits fell 20 per cent to £6bn in 2024.
Profit woes were driven by a £700m provision in the bank’s annual report for potential motor finance payouts.
The new batch of funds set aside took the total amount reserved for any compensation to nearly £1.2bn after it put aside £450m in February 2024.
“We maintain our Hold recommendation but see potential for further appreciation as motor finance issues are resolved and strong financial performance continues,” said analysts Robert Page, Stephen Payne and Stuart Duncan.
New buyback eases investors ‘fears’
“Continuing uncertainties surrounding motor finance are not preventing the group from delivering on capital distributions, which we estimate at £13.7bn for the coming three years, equal to around 30 per cent of group market capitalisation,” analysts added.
They said the bank’s £1.7bn share buyback announced in its annual results helped address “fear” from investors that motor finance payouts “could impair the group’s capacity to make capital distributions”.
Page, Payne and Duncan added: “Future guidance assumes no further remediation for motor finance.”
However, they cautioned earnings per share estimates had decreased by 6.6 per cent due to “changes in the assumed phasing of motor finance issues”.
The analysts shared a positive long term outlook, adding income trends had raised earning expectations for later years. This, they said, would benefit Lloyds shares.
“Lloyds’ revenues have been volatile and highly sensitive to the UK interest cycle.
“For the coming three years, we now forecast a revenue compound annual growth rate of around 6.5 per cent underpinned by rising structural hedge income, which is adjusting to a more normalised interest rate environment and accelerated growth in non-funded income.”