Goldman Sachs has upgraded Lloyds Banking Group PLC (LSE:LLOY) to ‘buy’, raising its 12-month price target to 99p and pointing to around 20% upside from here.
The tone in the note is much more upbeat, now that uncertainty over motor finance compensation appears to be largely behind the sector.
Goldman reckons investors can finally look past the motor finance saga and focus on Lloyds’ “core equity story”, which is all about stronger earnings, growing revenue diversification, and a solid capital return through dividends and buybacks.
In fact, the bank expects Lloyds to deliver an 18% compound annual growth rate in underlying earnings per share through to 2027, more than double the sector average.
Lloyds is the largest UK retail bank by market share and has a strong digital presence, with 23 million digitally active users.
Two-thirds of its revenues come from net interest income, and Goldman expects a “material acceleration in revenue growth”, helped by strength in mortgages, insurance, and workplace pensions.
The American bank notes that even with the recent rally, Lloyds’ valuation still looks undemanding compared to peers, and ongoing cost savings should drive efficiency further.
The return on tangible equity is forecast to reach 18% by 2027, with a robust capital return yield over the coming years.
As Goldman puts it, Lloyds “is well positioned to navigate this macroeconomic environment”, and the bank’s renewed focus on the core business has set the stage for a more positive story from here.
In afternoon trading, the shares were flat at 80.41p.