Are Lloyds shares really worth 52% more than they were in February 2023?
Since September 2024, Lloyds Banking Group (LSE:LLOY) shares have risen in value by 36%. Looking back further, itâs a similar story. Compared to 22 February 2023 — when the bank published its 2022 results — its share price is now 52% higher.
At the time, its market cap was £34.5bn. Today (3 September), itâs valued at £46.7bn. But this is âonlyâ an increase of 35%. How can the share price have increased by more than the bankâs stock market valuation?
The answer is that over this period, Lloyds has been buying its own shares. A look at the last three annual reports reveals that — from 2022 to 2024 — the number of shares in issue fell by 14.7%. During this time, itâs spent £6bn on its own stock. Itâs also part-way through another buyback programme worth £1.7bn.
On the face of it, this seems like a good use of cash. The alternative â to increase its dividend â would have benefitted shareholders far less than the capital appreciation they have enjoyed.
| Ordinary shares | 2022 | 2023 | 2024 | All |
| At 1 January | 71,022,593,135 | 67,287,852,204 | 63,569,225,662 | 71,022,593,135 |
| Issued to employees | 793,990,660 | 667,636,165 | 734,265,017 | 2,195,891,842 |
| Share buybacks | (4,528,731,591) | (4,386,262,707) | (3,686,477,708) | (12,601,472,006) |
| At 31 December | 67,287,852,204 | 63,569,225,662 | 60,617,012,971 | 60,617,012,971 |
Then and now
But the bankâs performance hasnât improved by as much as the increase in its share price might suggest.
In 2022, it reported net interest income of £12.92bn and a profit after tax (PAT) of £3.92bn. For 2024, these figures were £12.28bn and £4.48bn, respectively. Little change is expected in 2025 — the consensus of analysts is for a PAT of £4.38bn.
If this yearâs forecast is correct, the bankâs earnings will have improved by less than 12% in four years. This doesnât appear to justify the recent share price rally, which now means the stock trades on 12.5 times historical profit.
However, looking ahead, post-tax earnings are expected to be £5.89bn in 2026 and £6.66bn in 2027. And despite most economists forecasting that the base rate will fall over the next couple of years, the consensus is for Lloyds’ net interest margin to improve â 3.07% (2025), 3.26% (2026) and 3.37% (2027).
Also, with more buybacks anticipated, earnings per share are forecast to rise by 73% from 6.4p in 2025 to 11.1p in 2027.
Figures like these means the current valuation makes more sense to me. Investors are clearly pricing-in a significant improvement in its bottom line between now and 2027. The forward (2027) price-to-earnings ratio is a much more attractive 7.
Worrying signs
However, I feel these forecasts are a little optimistic. Lloyds does nearly all of its business in the UK, where I see some warning lights flashing on the economic dashboard.
Most worryingly, the 30-year gilt rate â an indicator of bond market confidence — recent recorded a 27-year high. Last October, the chancellor unveiled the largest tax-raising budget in history and yet thereâs still a hole in the nationâs finances.
On 31 August, we saw how a windfall tax could impact the sector’s valuations. Lloyds shares fell over 3% following publication of a proposal from a think-tank that would raise £8bn a year from the industry. Although implementing this idea would give the Chancellor some wriggle-room, itâs still not enough.
A UK economic downturn would be bad for the Lloyds share price. And because Iâm becoming increasingly anxious about the countryâs prospects, I fear the bank won’t meet analysts’ expectations. Therefore, I donât want to take a position at the moment.
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James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
