Lloyds Banking Group PLC (LSE:LLOY) was given a boost on Tuesday as analysts at Morgan Stanley and Peel Hunt upped their expectations and raised share price targets.
Morgan Stanley upgraded its rating on the shares to 'overweight' from 'equalweight' and raised its price target to 90p from 70p.
Following recent final results, Peel Hunt increased its target to 70p and kept its 'hold' rating unchanged.
Lloyds shares have risen around a third in the year to date, which the Morgan Stanley team put down to the stock catching up from last year’s underperformance, which reflected slow progress on net interest income and ongoing worries about the size of compensation for potential motor finance mis-selling.
They anticipate that net interest income will improve over the next two years, with clarity expected on motor finance by mid-year, for which the lender set aside a further £700 million in the past quarter.
While Lloyds shares have outperformed rivals NatWest and Barclays in the year to date, the circa-50% gain since the start of 2024 pales in comparison with its peers, who have more than doubled, and Morgan Stanley said that a catch-up is overdue.
The Peel Hunt analysts said 2024 ended strongly, with underlying PBT well ahead of consensus forecasts if excluding the top-up provision for motor finance.
In 2024, Lloyds was able to announce a new buyback of £1.7 billion in spite of the motor finance provision, as well as increasing the dividend 15%.
Although the lender's management has signalled its £1.15 billion total motor finance provisions are its best estimate of the total costs of related issues, Peel Hunt expects a further £0.6 billion charge for 2025, but still sees "scope" for the group to return circa £13.7 billion of capital in dividends and buybacks to shareholders over the coming three years.