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The Lloyds (LSE: LLOY) share price is up nearly 40% in 2025 so far, making it one of the standout performers in the FTSE 100.
After years of lagging behind, the UK’s biggest mortgage lender has bounced back. But I think long-term investors should look through the noise and see what prospects lie ahead in 2025 and beyond.
Recent financials
The company’s share price has been propelled to 76p each as I write on 17 June by a combination of solid financials, reduced uncertainty and a relatively robust economic outlook.
Despite reporting a 20% drop in full-year pre-tax profit to £5.97bn back in February, investors seemed to find some positives including the company’s 15% increase in its dividend to 3.17p alongside a £1.7bn share buyback programme.
Fast forward to the first-quarter results in May, and Lloyds reported underlying net interest income up 3.5% to £3.29bn from the prior year and increased its net interest margin by eight basis points to 3.03%.
Management reiterated guidance for 2025 and 2026 as it reported growth in both underlying loans and advances to customers, as well as customer deposits.
Less uncertainty and lower costs
A major cloud of uncertainty hanging over the company may also be showing signs of clearing in early 2025. Lloyds has set aside a hefty £1.15bn provision for historic car finance lending practices, but left that unchanged in its first-quarter results.
The bank has also continues to focus on cost-cutting and streamlining via its ‘Platform 3.0’ efforts to digitise and improve margins.
Valuation
Lloyds shares still trade on a modest price-to-earnings (P/E) ratio of 12.5, just below the Footsie average of around 13.5. The dividend yield sits at a healthy 4.1%, which gives income investors something to like.
The company’s price-to-book (P/B) ratio is around 1, suggesting that the bank is pretty fairly valued at the moment.
Rivals like Barclays with a P/B of 0.6 may be more compelling. However, its rival generates a bigger share of its income from its volatile investment banking division and is on a grand transformation journey of its own, which may explain the discount to Lloyds.
Can the stock go higher?
So, it’s been a strong run of late for the Lloyds share price. But can it go further?
On the one hand, Lloyds could benefit if the UK economy holds up and consumers keep paying their debts.
Ongoing geopolitical uncertainty could also put the brakes on the Bank of England’s plans to cut interest rates in 2025. That would likely help to maintain or boost net interest income.
However, there are definitely risks involved. Further interest rate cuts could put margins under pressure while increasing bad loans could spell trouble. Also, the car finance issue does remain unresolved, which creates uncertainty.
My verdict
While things are looking promising for the bank, I like to think long term and try to cut through the short-term noise.
The recent rally reflects improving sentiment, strong cash generation, and a clear strategy. But banking remains a cyclical business, and share prices can be volatile.
I think there’s certainly room for the Lloyds share price to move higher in 2025 and it could be worth considering. There’s plenty of uncertainty riding on external factors, but the short-term outlook does look positive to me.
