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Some FTSE 100 The stock had a fantastic 2024, but the Lloyds Banking Group (LSE:LLOY) share price was not one of the biggest winners.
Lloyds shares have risen around 20% in the last 12 months. But Barclays has risen more than 80%. Lloyds' relative underperformance is surely down to two key things.
It is the UK's largest mortgage lender, so potentially faces the greatest risk when interest rates fall. And it could be a big loser in the ongoing investigation into mis-selling auto loans.
Forecasts
However, municipal forecasts for profits and dividends remain quite optimistic.
Is a forward price-to-earnings (P/E) ratio of 8.4 by 2024 the minimum for a FTSE 100 bank? In other circumstances I would say yes, sure. But a couple of things make me think.
One is that these predictions show the P/E rising above nine in 2025. And that's not great, because it's based on an expected decline in earnings per share (EPS).
If the economy continues to falter and Lloyds could face pressures on its credit margins, I think such a decline could really be on the cards.
Lloyds Guidance
Still, at least the forecasts for 2024 surely cannot be too far away at this late stage. The board reaffirmed its own 2024 guidance at the time of its third-quarter update in October.
I won't go into guidance details here. But it seems to align quite well with City's current outlook and valuations.
Although analysts expect EPS to fall in 2025, they are forecasting a return to growth for 2026. That should push the P/E back down.
Lloyds' own guidance is optimistic in that time frame. In the first half of 2024, we had an interim update in which the bank talked about “maintaining its medium-term guidance for 2026.“
uncertain year
This is based on seeing a better return on tangible capital in 2026 than in 2024. And also better capital generation.
The problem is that Lloyds hasn't said much so far about 2025. In October, we looked at some economic assumptions for next year, and these included slow but consistent economic growth.
But with zero growth between July and September 2024, that might be a bit optimistic.
The bank said the risks “Around this base case, the economic vision is found in both directions..” With 2024 just over, I think the outlook for 2025 is more uncertain than it has been for months.
Dividends
Forecasts show dividends will grow reasonably strongly in 2025 and 2026, following an expected increase in 2024. If correct, we could see 3.8 pence per share by 2026, yielding 6.9% on the price in the time of writing this article.
Analysts have a Cautious Buy consensus at the moment, with more of a Hold stance than anything else. The average price target for the stock is modestly ahead at 65p.
I'm going to go with them and keep my Lloyds shares. I think the bank faces more risks than its rivals in 2025. But I'm in it for the long-term dividends.
