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Some FTSE 100 shares had a cracking 2024, however the Lloyds Banking Group (LSE: LLOY) share worth was not one of many greatest 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 greatest mortgage lender, so it doubtlessly faces essentially the most danger when rates of interest fall. And it may very well be a giant loser within the present automobile 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 12 months low for a FTSE 100 financial institution? In different circumstances I’d say sure for certain. 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 doubtlessly going through strain on its lending margins, I reckon such a fall actually may very well be on the playing cards.
Lloyds steerage
Nonetheless, not less than the 2024 forecasts certainly can’t be far off at this late stage. The board reaffirmed its personal steerage for 2024 on the time of its Q3 replace in October.
I received’t go into the steerage particulars right here. But it surely appears to line up effectively sufficient with the present Metropolis outlook and valuation.
Although analysts anticipate 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 steerage 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 steerage for 2026.“
Unsure 12 months
That’s primarily based on seeing a greater return on tangible fairness in 2026 than in 2024. And a greater capital era too.
The difficulty is, Lloyds hasn’t thus far stated a lot about 2025. In October, we noticed some financial assumptions for the 12 months 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 stated the dangers “round this base case financial view lie in each instructions.” As 2024 has simply ended, I believe 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 anything. The common share worth goal is modestly forward at 65p.
I’m going to go along 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.
