New Lloyds milestone as strong run continues

New City price targets pointing to further upside in the Lloyds Banking Group (LSE:LLOY) resurgence today helped the lender’s shares establish a foothold above 70p for the first time since 2018.

In the wake of last week’s robust annual results, analysts at Barclays have lifted their Lloyds valuation estimate by 10p to 90p, while counterparts at Deutsche Bank are 8p higher at 88p.

The latter said: “Very few European banks offer the same enviable combination of strong revenue, tangible net asset value, dividend and buyback growth that Lloyds has to offer.”

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Having lagged high-flying NatWest Group (LSE:NWG) and Barclays (LSE:BARC) in 2024, the shares have accelerated during 2025 to post sector-leading growth of 29%. That compares with its rivals nearer 14%.

A year ago, the shares were 46p and stuck in a narrow trading range dating back to 2021.

The past week’s advance has come despite a further £700 million provision and warning of significant uncertainty over the final cost of motor commission redress.

Excluding this, fourth-quarter profits were 11% higher than expected as the company’s chief executive Charlie Nunn delivered a beat on net interest income and impairments.

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Peel Hunt said that Lloyds had achieved the difficult feat of simultaneously making market-leading levels of provisions for motor finance, beating 2024 profit expectations, holding the line on future guidance and keeping capital return credentials at high levels.

In last week’s results, Lloyds announced a buyback of £1.7 billion and increased the dividend by 15% to 3.17p a share - compared with the 3.09p consensus. The CET1 capital buffer was in line with guidance of 13.5%.

Deutsche Bank pointed out today that Lloyds generates £5-6 billion of organic capital per year on top of an existing excess capital position.

Even with further dividend growth of 15-20% a year, it said the Lloyds dividend payout ratio to earnings remains in the mid 40s.

This means a sizeable step up in buyback is therefore required if Lloyds is committed to paying down to a 13% CET1 ratio by 2026. By 2027, the bank expects capital returns per share to be almost double the 2024 reported level.

It added: “If the business plan continues to deliver, there is further substantial upside for shareholders.”

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Lloyds is the favourite pick of Jefferies, which has reiterated Buy recommendations on all three UK-focused banks following a strong results season.

It said: “We haven't been through all 2,077 pages of disclosure (excluding subsidiary accounts) just yet. But refreshingly, what we have seen at Barclays, Lloyds and NatWest is of little surprise.

“That's what happens when 50% of net interest income is driven by the liability side of the balance sheet and accounting earnings flow through to capital with limited distortion.”