Shore Capital has cut its recommendation on Lloyds Banking Group PLC (LSE:LLOY) to 'sell' from 'hold', arguing that the shares are now fully valued after a strong rally and that supernormal returns may prove unsustainable.
The downgrade comes despite a rise in the broker’s target price to 91p from 84p, reflecting upgraded return forecasts. At the current price of 109p, the shares trade well above this level, implying 17% downside.
Lloyds reported pre-tax profit of £6.7 billion for 2025, up 12% year on year and 4% ahead of consensus.
The beat was attributed to a lower-than-expected impairment charge and favourable volatility, which Shore described as “a relatively low-quality beat”.
Return on tangible equity reached 12.9%, or 14.8% excluding a previously disclosed £800 million motor finance provision.
The bank lifted guidance for 2026 returns to over 16%, supported by strong capital generation and continued tailwinds from the structural hedge.
Net interest income grew 6% to £13.6 billion, with the structural hedge contributing £5.5 billion. Other income rose 9% to £6.1 billion on broad-based growth across divisions.
The impairment charge of £795 million equated to a ratio of 17 basis points, flattered by model adjustments and a retail debt sale.
Despite near-term strength, Shore expects rising competition and the risk of further taxation to limit the sustainability of these returns. “We see current levels of return as being supernormal,” the broker said.
In afternoon trading, the stock was flat at 108.64p.