It’s only been two years since Lloyds Banking Group (LSE: LLOY) shares have finally begun their long-awaited recovery. And since mid-February 2024, patient investors have seen their holdings more than double in value. They’re actually up about 130%, along with dividends, currently forecast to yield 3.6% this year.
That means £5,000 invested in Lloyds shares before the two-year climb would be worth £11,500, excluding dividends.
On 29 January, Lloyds reported a 12% rise in pre-tax profit from an 8% rise in 2025 revenue. And the bank also announced a new share buyback program of up to £1.75bn. That was very impressive. And since then, analysts have started raising their predictions. But after two years of price hikes, there won’t be any left. Or could there be?
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The target value
Deutsche Bank is the latest to update its guidance, raising its target from 110p to as high as 125p. That would mean another 19% over the share price, at the time of writing. The £11,500 an investor would have today by investing £5,000 in Lloyds shares two years ago could grow to close to £13,700.
I can see why some shareholders might be a little nervous after the huge share price gains we’ve seen though. But I’m holding on to mine, of course.
I’m talking about investor jitters, I don’t want to scare the crap out of you. In fact, I can see where Lloyds may be exposed to some greater risks than the banking sector as a whole.
Interest margins
Lloyds focuses on UK retail banking, and does not have the international arm of some of its competitors. It’s the UK’s biggest mortgage provider, so it’s all about home loans.
In 2025, Lloyds’ underlying interest income reached £13.6bn, up 6% on the 2024 figure. And the enthusiasm of the bank’s healthy 3.06% profit was emphasized. When researching bank stock ratings, that page is an important benchmark. It marks the difference between the interest a bank can earn by lending money, and the interest it pays to lenders.
If the balance is correct, it may be like a license to print money. And when Bank of England (BoE) base rates are high, that balance can be very positive indeed. The problem is, it seems likely that the BoE will cut its rates perhaps sooner than many expect. UK inflation fell to 3%, not far above the 2% target.
What’s next?
Currently, we are looking at a forecast price-to-earnings (P/E) ratio of 10.5 for Lloyds shares for 2026. That is less than FTSE 100 average. But considering the uncertain economic climate we are still facing, I saw it as a fair price. It might be enough for me to hold, but I’m more likely to direct new investment money in another direction.
That said, if the forecasts are correct, Lloyds P/E could drop below eight by 2028. And I would rate that as cheap as well.
Hmm, maybe I’ll consider buying more.
