Is the countdown really on for the Lloyds share price reaching £1?

The Lloyds Banking Group (LSE: LLOY) share price reached 96.94p on 28 November. That’s just 3.06p short of the 100p level investors have been eyeing up for months.

I think breaking the pound barrier is probably inevitable — sooner or later. But it’s not that important in itself, even if it could be a stepping stone to better things.

We escaped threats of a windfall bank tax in the Autumn Budget. Chancellor Rachel Reeves reportedly considered it, but was reluctant to damage competitiveness and potentially harm our economic recovery.

I think it was the right decision — and not just from a shareholder perspective.

Price targets

Analysts currently have an average target of 95.5p for the Lloyds share price. And that’s almost exactly where it is right now. Some will also look at the strong share price climb — up 80% in 12 months — and say it must be near the peak now. But those thoughts don’t make me consider selling.

Broker targets cover a timespan going back months, and the more recent ones are the highest. But they’re not something to trust too much anyway. They often don’t seem to do any more than just extrapolate the current trend.

The share price climb also doesn’t look anything like a typical growth stock running out of steam to me. And that’s down to bank valuations.

I reckon the strong gains are because bank shares were crazily undervalued over the past five years — and prices don’t suggest overvaluation now.

Valuation

At Lloyds we’re looking at a forward price-to-earnings (P/E) ratio of 14, dropping to 8.5 based on 2027 forecasts. That’s nothing like the rock-bottom multiples of five or six the banks were on a few years ago, so those levels of undervaluation are over.

But Lloyds is nowhere near the P/Es of around 30 or so forecast for Rolls-Royce Holdings, an example of a genuine growth stock. And any comparisons between the two share price performances would surely be misleading.

The main risk I see now is falling interest rates eating into Lloyds’ lending margins. That wouldn’t be the best news for the UK’s biggest mortgage lender. And following the Budget, The Guardian has put the chance of a Bank of England rate cut in December as high as 90%.

What builders say

Then again, cheaper mortgages should mean more house buying which means more borrowing, right? There might be a fair bit of lag, and that could harm the Lloyds price.

But with November’s third-quarter builder updates, Taylor Wimpey CEO Jennie Daly said: “Looking ahead, UK housing market fundamentals are highly compelling.” And Dean Finch at Persimmon spoke of “increased sales rates, more sales outlets, and robust pricing.”

To my mind, housebuilding and finance are possibly the two sectors with the brightest long-term futures — though I expect volatility from both.

Lloyds might not be mega-cheap now. But I consider it fair value, and I’m holding. The 100p price level? Well, it’s really just numbers, so I’m already happy at 96p.

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Alan Oscroft has positions in Lloyds Banking Group Plc and Persimmon Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc and Rolls-Royce 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.