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Some FTSE 100 shares had a cracking 2024, however the Lloyds Banking Group (LSE: LLOY) share value was not one of many largest winners.
Lloyds shares are up round 20% previously 12 months. However Barclays has climbed greater than 80%. Lloyds’ relative underperformance certainly must be down to 2 key issues.
It’s the UK’s largest mortgage lender, so it probably faces probably the most danger when rates of interest fall. And it may very well be a giant loser within the present automotive mortgage misselling probe.
Forecasts
Metropolis forecasts for earnings and dividends are nonetheless fairly bullish, nonetheless.
Is a ahead price-to-earnings (P/E) ratio of 8.4 for the 2024 full yr low for a FTSE 100 financial institution? In different circumstances I’d say sure for positive. However a few issues give me pause.
One is that these predictions present the P/E rising above 9 in 2025. And that’s that’s not nice, as a result of it’s primarily based on a forecast earnings per share (EPS) fall.
If the financial system continues to falter, with Lloyds probably going through strain on its lending margins, I reckon such a fall actually may very well be on the playing cards.
Lloyds steering
Nonetheless, no less than the 2024 forecasts certainly can’t be far off at this late stage. The board reaffirmed its personal steering for 2024 on the time of its Q3 replace in October.
I received’t go into the steering particulars right here. However it appears to line up effectively sufficient with the present Metropolis outlook and valuation.
Although analysts count on EPS to fall in 2025, they do have a return to progress on the playing cards for 2026. That ought to ship the P/E down once more.
Lloyds’ personal steering is upbeat on that timescale. Again at H1 time in 2024, we had an interim replace wherein the financial institution spoke of “sustaining its medium-term steering for 2026.“
Unsure yr
That’s primarily based on seeing a greater return on tangible fairness in 2026 than in 2024. And a greater capital technology too.
The difficulty is, Lloyds hasn’t to date mentioned a lot about 2025. In October, we noticed some financial assumptions for the yr forward, they usually included sluggish however constant financial progress.
However with zero progress between July and September 2024, that may show to have been a bit optimistic.
The financial institution mentioned the dangers “round this base case financial view lie in each instructions.” As 2024 has simply ended, I feel the 2025 outlook is extra unsure than it’s been for months.
Dividends
Forecasts present dividends rising moderately strongly in 2025 and 2026, following an anticipated rise for 2024. In the event that they’re proper, we might see 3.8p per share by 2026 for a 6.9% yield on the worth on the time of writing.
Analysts have a cautious Purchase consensus proper now, with extra on a Maintain stance than the rest. The common share value goal is modestly forward at 65p.
I’m going to go together with them and maintain my Lloyds shares. I do suppose the financial institution faces extra dangers than its rivals in 2025. However I’m in it for the long-term dividends.
