Lloyds Share Price Forecast | Is Lloyds a Good Share To Buy? (2024)

As theRussian invasion of Ukraine continues to weighon the valuation of European equities,Lloyds Banking Group (LLOY)could be affected if the conflict escalates and other countries become directly involved.

Financial institutions, including Lloyds — one of the UK's biggest retail banks — could be exposed to lower business volumes, due to the sanctions imposed on Russia amid its hostile activities, while the macroeconomic environment in the UK and other developed countries is being aggravated by inflationary pressures and a slower-than-expected response from central banks to contain the escalation in prices.

What can we expect from the stock of one of Britain’s largest banks in this challenging environment? In this article, we analyse the latest Lloyds share news, along with its price action and fundamentals, to outline plausible scenarios for the future.

Company history

Lloyds Banking Group, currently the third-largest retail bank in Britain behind Barclays (BARC) and HSBC (HSBA),was founded in Birmingham in 1765. Itexpanded during the 18th and 19thcenturies by taking over a number of smaller banking businesses.

In 1995, the bank mergedwith the Trustee Savings Bank (TSB) to formLloyds TSB — at that point the largest bank in the UK by market share, and the second-largest (toHSBC, which had taken over the Midland Bank in 1992) by market capitalisation.

Amidst the credit crunch in2008, theLloyds TSB Group took over HBOS – itself formed by a merger between Halifax plc and the Bank of Scotland in 2001. The UK government allowed the deal to bypass competition law with the goal ofavoiding another Northern Rock-style collapse. After the rescue of HBOS,theLloyds TSB Group was renamed Lloyds Banking Group – the name it continues toholdto this day.

In 2009, the British governmenttook a 43.4% stake in the group following the liquidity crisis. The European Commission reacted to the move by rulingthat the group must sell a portion of its business by November 2013, as it interpreted the stake purchase as state aid. In March 2017, the British government confirmed that its remaining shares in the group had been sold.

Lloyds Banking Group currently has 26 million customers in the UKand posted statutory profits after tax of £5.9bnin 2021. The group is listed on the London Stock Exchange (LSE) and is a constituent of the benchmark FTSE 100 index.

Lloyds share analysis: Technical views and price drivers

As of 8 July 2022, the Lloyds share pricehas fallen close to 15% so far this year,as the situation in Ukraine remains a concern for market participants. The escalation of the conflict could have a ripple effect on businesses within the region.

Moreover, the macroeconomic situation for most developed countries in the wake of the pandemic seems challenging, as inflation has accelerated dramatically.

Even though some central banks, including the Federal Reserve in the United States, have implemented contractionary monetary policies and aggressively hiked interest ratesin response to soaring inflation, the right path towards achieving price stability and low unemployment continues to be elusive.

For banks such as Lloyds, higher interest rates could be beneficial, generating higher income from the loans extended by the firm. However, if the global economy decelerates and financial markets suffer amid a large-scale armed conflict, a decline in business volumes could offset the positive contribution of higher rates.

From a technical standpoint, the price action has posted multiple lower highs since the year started, whichcould favour a bearish short-term Lloyds share forecast.

However, the 41p horizontal supportlevel highlighted in the chart held up quite well during the escalation of tensions between Russia and Ukraine in February, which makes it a relevant support area to watch moving forward.

Momentum indicators, as of 8 July, have been favouring a bearish Lloyds share price outlook as well. The Relative Strength Index (RSI) has been standing at 44,while the Moving Average Convergence Divergence (MACD) drifted to negative territory shortly after crossing below the signal line.

Lloyds fundamental analysis: Q1 2022 earnings

Despite a reduction in costs, underlying profit fell 7% to £1.8bn. That reflects a £177m impairment charge, including a limited charge for the weakening economic outlook. Ignoring this, underlying profits increased 26%.

The group said that “given the solid financial performance”, it now expects its banking net interest margin to be above 2.7% for the whole year.

Lloyds earnings in 2021

On 28 February, Lloydsreportedits financial results covering the entire 2021 fiscal year.During the period, net interest income for the British bank grew 4% to end the year at £11.16bn ($14.54bn), while income from other streams grew 12% to finish at £5.06bn. Meanwhile, the bank reported a surge in profitability as it set aside less money for credit losses.

In 2020, amid the pandemic, Lloyds recorded a total impairment of £4.25bn. However, the financial institution decided to reduce its reserves by £1.2bn in 2021, which resulted in statutory profits of £5.89bn compared to the £1.39bn reported the previous year.

Average interest-earning banking assets ended at £445bn – up £10bn compared to the previous year – while the bank’s net interest margin advanced by two basis points to 2.54%.

By the end of the year, Lloyds CET1 ratio (Common Equity Tier 1) stood at 17.3%, resulting in a 110 basis points improvement compared to a year before, while the bank’s tangible net assets per share ended at 57.5p.

Last year, Lloyds paid a dividend of 2p. The interim dividend was paid in September, with the final dividend expected to be paid in May this year. Based on 2021’s payments, the dividend yield for LLOY is standing at 4.4%.

On the other hand, the consensus Lloyds share dividend forecast for 2022 is standing at 2.34p, resulting in a forward 5.2% dividend yield.

Lloyds share predictions: Analyst sentiment

Are Lloyds shares a ‘buy’, ‘sell’, or ‘hold’? According to data compiled by MarketBeatas of 8 July 2022, the consensus analyst recommendation for Lloyds shares was bullish, with a total of 5 out of 8 analysts currently rating the stock as a ‘moderate buy’. Two analysts gave it a ‘hold’ recommendation, while one rated it a ‘sell’.

The average Lloyds share price target stood at 55.50p, resulting in a 31.7% upside potential based on 7 July’sclosing price of 42.14p if that target is hit.

The highest Lloyds Banking Group share price forecast from analysts for the next 12 months was set at 63p and the lowest at 44p.

On 22 April,HSBC analyst Robin Down raised the price target on LLOYfrom 46p to 51pwhile maintaining a ‘hold’ rating.

Barclays recently downgraded Lloyds to ‘equal weight’, setting a lower price target of 52p on 30 June.Deutsche Bank also lowered its target from 67p to 61p while maintaining a ‘buy’rating in late May. Analysts appear toremain concerned about the impact of higher inflation and potential economic deceleration in the region due to the Russia-Ukraine war.

Analysts at Hargreaves Lansdown said the following about the Lloyds share potential after the bank released its Q1 results in 2022:

“As a traditional high street bank without fee-based investment banking income, low interest rates are particularly painful for Lloyds. A net interest margin of 2.7% isn’t highly profitable. As further incremental interest rate rises come through, Lloyds is in a good spot, but it’s also doing the right thing by looking for alternative ways to grow.”

“The group’s streets above the capital ratio set by regulators, meaning there’s hordes of uninvested excess capital –arguably –going to waste. Cash that could be returned to shareholders.”

They concluded: “Overall, we commend the efforts to diversify, but these are a way off being the main event. In the meantime, Lloyds looks set to benefit from incremental interest rate hikes –but investors should be prepared for ups and downs given economic uncertainty.”

Lloyds share price forecast: Targets for 2022, 2025 and 2027

Meanwhile, algorithm-based forecasting service WalletInvestorprovided a longer-term Lloyds share forecastfor 2022 and beyond.

Despite the projected short-term gains, the baseline longer-term Lloyds share price forecast for 2025 was negative, as the algorithm expected that the price could decline to an average price of 31.375p by the end of the year.

Although it didn’t provide a Lloyds share price prediction for 2030, its five-year LLOY forecast suggested the stock could fall to 21.648p by July 2027.

When looking for Lloyds (LLOY) shareforecasts, it’s important to bear in mind that analysts’ and algorithm-based projections can be wrong. While their projections are based on analysesof the LLOY historical stock price, it’s important to note thatpast performance never guarantees future results.

It’s important to do your own research. Your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your portfolioand how comfortable you feel about losing money. You should never trade more than you can afford to lose.

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