By August 2026, the Lloyds share worth may flip £10,000 into…

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Since October 2024, the Lloyds Banking Group (LSE:LLOY) share worth has soared 44%. This spectacular rally places it within the prime 20% of FTSE 100 performers over the previous 12 months.

But when one analyst is correct, there’s nonetheless extra to come back. In August, Jefferies set a brand new one-year worth goal of 103p. If this valuation proves to be correct, it means anybody investing right now (2 October) may see £10,000 develop to £12,262.

As well as, if the analysts’ consensus forecasts are proper, the financial institution may pay a dividend of three.5p through the coming yr. This might generate one other £416 giving an general acquire of 26.8%.

That’s a lovely prospect. In spite of everything, essentially the most that may be earned on one of many financial institution’s fixed-rate financial savings accounts is presently 3.45%.

A home focus

However I feel the financial institution’s closely reliance on the UK financial system makes a three-figure share worth unlikely. With development slowing and inflation remaining above the Financial institution of England’s 2% goal, it may imply rates of interest keep greater for longer.

On paper, a good financial coverage is nice for banks. Greater rates of interest are seemingly to assist Lloyds’ web curiosity margin (NIM) — the distinction between the quantity earned on its loans and that paid on buyer deposits, expressed as a proportion of interest-bearing belongings.

In 2024, its NIM was 2.95%. Analysts predict this to extend over the following three years to three.07% (2025), 3.26% (2026) and three.37% (2027).

Then again…

However the flip facet is that greater borrowing prices may see a rise in mortgage defaults. In 2024, the financial institution recorded an impairment cost of £433m. This contains the precise price of unhealthy loans in addition to an estimate of potential losses. This was equal to six.4% of its pre-impairment revenue. Analysts are predicting it will improve to £1.38bn by 2027 — 12.9% of earnings.

By comparability, its 2020 cost was £4.2bn. Don’t get me flawed, I’m not predicting the sluggish UK financial system will deteriorate to such an extent it did on the peak of the pandemic. However I’m turning into more and more nervous.

Most FTSE 100 corporations have a world footprint to assist unfold the chance of a downturn. Not Lloyds. And to assist fill a gap within the nation’s funds, I believe the Chancellor would possibly impose a windfall tax on the nation’s banks. Politically, they’re a straightforward goal.

Remaining ideas

Nonetheless, analysts are extra optimistic than me. Regardless of anticipating a rise in unhealthy loans, they’re forecasting earnings per share to be 76% greater in 2027 than in 2024. Partly, that is helped by anticipated share buybacks of round £7.3bn. However they’re additionally predicting Lloyds post-tax revenue will rise by 49%.

If it could actually obtain figures like these I see no cause why the financial institution’s share worth couldn’t break by the 100p barrier. However I’ve a hunch that the ‘experts’ are being too optimistic.

Of the FTSE 100’s 5 banks, Lloyds shares are presently the most costly. They’re altering arms for 13 instances its forecast 2025 earnings. It appears to me that among the analysts’ optimism is already priced into the financial institution’s share worth. Any wobble within the financial system and there may very well be a pointy correction. On this foundation, the inventory’s not for me.