Could Lloyds Banking Group plc shares hit 100p by year end?

Despite Lloyds Banking Group (LSE: LLOY) shares being down around 6% year-to-date, sentiment towards the bank is improving. With PPI charges and regulatory fines hopefully a thing of the past, the outlook for Lloyds appears to be more positive than it has been in recent years.

The bank’s current share price of around 70p is certainly an improvement on the 2011 low of 22p, however Lloyds has spent a great deal of time trading in the 70p-80p region over the last three years. 

The question now is whether Lloyds can break out of this range and charge towards 100p.

Broker upgrades

The city is certainly quite optimistic in relation to Lloyds’ prospects at the moment.

From a survey of 28 sell-side analysts – 19 currently rate Lloyds as a buy, six rate the bank as a hold and just three recommend selling the stock. 

Furthermore, from the list of brokers with a buy rating for Lloyds, several have lofty price targets for the bank. Barclays has a 12-month price target of 95p, Société Générale a target of 98p and Jefferies believes Lloyds could go even further and hit 108p.

While these price targets are considerably higher than the current share price, in my opinion they’re not overly unrealistic if certain scenarios play out.

Brexit, UK property and the FTSE 100

For Lloyds’ share price to rocket up to 100p I believe we would need to see a vote for the UK to stay within Europe at the upcoming EU referendum. As Lloyds is seen as a proxy for the UK economy, a leave vote would likely result in a great deal of uncertainty towards the bank and could have negative consequences for Lloyds’ share price.

Furthermore, we would need to see continued growth and stability in the UK property market. Lloyds is the number one UK mortgage player with a market share of 21% and a downturn in the property market or any sudden government intervention could have ramifications for earnings at Lloyds.

Lloyds could also do with some help from the FTSE 100 index. There’s no doubt the FTSE 100’s performance has been disappointing in the last 12 months – after breaking through 7,000 points early last year, the index is back to around 6,200 points now. If sentiment towards UK stocks becomes more positive, Lloyds will most likely be a beneficiary.

Cash cow

What Lloyds Banking Group has going for it is its high levels of capital generation, and the large dividends that are forecast to be paid out to shareholders in the coming years.

Indeed, with forecast yields of between 5% and 8% in the next few years, Lloyds could be an absolute cash cow.

There’s probably a small degree of scepticism in relation to whether these dividends will in fact be paid, but if Lloyds can deliver in this department, there’s no doubt it will further boost the sentiment towards the bank and the share price should rise as a result.