It’s no mistake that shareholders in Lloyds Banking Group (LSE: LLOY) (NYSE: LYG) have done well — their shares have climbed 23% over the past 12 months to today’s 75p, and they’ve rocketed by 180% over two years.
But is there more to come? Let’s see what’s driven the recent climb…
For the year just gone, Lloyds turned the corner by recording a pre-tax profit. It was only a small one, but there are much bigger things being forecast for this year and next.
Terrific forecasts
In fact, for the year ending December 2015, Lloyds is expected to turn in a pre-tax profit of more than £6bn, and that should translate into earnings per share (EPS) of 7.3p. And for 2015, City analysts are predicting a further jump in profit to £7.4bn, with EPS up 8% to 7.9p.
Dividends should be back, too, with a modest 1.5p for 2014 providing a yield of 2% on the current share price, rising to 3.3p or 4.5% for 2015 — and 4.5% is a pretty decent yield for a bank.
With those expectations, it’s easy to see why investors have been so bullish over Lloyds. But is there more to come? There surely is.
And still the shares are cheap
Impressive though the share price rise has been, it hasn’t left the shares looking at all highly valued — they’re on a forward P/E for this year of a lowly 10.3, while the FTSE 100 is valued at an average P/E of 14. And what’s more, the prognostications for 2015 would, if they turned out to be accurate, drop the P/E as low as 9.5 — and that’s way too low.
Looking further, if Lloyds could manage an additional 8% EPS growth in 2016, we’d see the P/E fall to under 9! And if the dividend is raised again, it could well top 5%.
Another 50%?
I don’t think a long-term P/E close to the FTSE average of 14 is unreasonable for a recovered Lloyds, and should the markets agree by the end of 2016, we’d most likely see the share price up as high as 110p — and that’s a further gain of nearly 50% on today’s price.
Is this a realistic hope? Of a sample of 28 analysts currently forecasting, a full 15 of them rate Lloyds a Strong Buy, with three more offering a Buy rating. And that’s one of the most bullish consensuses currently out there for any share.