Picture supply: Getty Photos
Lloyds Banking Group (LSE:LLOY) shares have risen a whopping 25% up to now in 2025, taking complete positive aspects over the past 12 months to a shade beneath 50%.
By comparability, the broader FTSE 100 has risen a extra modest 5% and 12.8% over the identical timeframe.
Following its astronomical rise, I’m curious to see how Lloyds’ share value seems from a GARP — or ‘Growth at a Reasonable Price’ — perspective. Because the title suggests, this technique goals to search out shares that look low cost based mostly on predicted earnings, as measured by the price-to-earnings development (PEG) ratio.
Right here’s what I’ve discovered.
Take a look at #1
To calculate the PEG a number of, I have to divide the price-to-earnings (P/E) ratio by anticipated earnings development. Right here’s what my calculations have thrown out:
| 2025 | 2026 | |
|---|---|---|
| Earnings per share (EPS) development | 7% | 32% |
| P/E ratio | 10.1 | 7.7 |
| PEG ratio | 1.4 | 0.2 |
As a GARP investor, I’ll be on the lookout for a PEG studying of 1 or beneath. You’ll see that the financial institution misses this goal for 2025, but in addition that subsequent yr’s ripping development forecast drives its shares properly inside this threshold.
Take a look at #2
So Lloyds’ shares look comparatively engaging as a GARP funding. However how does the Black Horse Financial institution rating in comparison with the FTSE 100’s different banks?
Right here you’ll see their earnings multiples based mostly on predicted earnings for the subsequent two years:
2025:
| Firm | P/E ratio | PEG ratio |
|---|---|---|
| Barclays | 7.7 | 0.4 |
| NatWest | 8.1 | 1.1 |
| HSBC | 8.7 | 3.2 |
| Commonplace Chartered | 9 | 0.8 |
2026:
| Firm | P/E ratio | PEG ratio |
|---|---|---|
| Barclays | 5.9 | 0.3 |
| NatWest | 7.2 | 0.6 |
| HSBC | 8.1 | 1.1 |
| Commonplace Chartered | 7.3 | 0.7 |
You’ll be able to see that Lloyds’ PEG ratios are much less spectacular in comparison with sector friends Barclays and Commonplace Chartered. Each carry multiples beneath 1 for each 2025 and 2026).
In higher information although, they’re roughly in keeping with NatWest’s over the interval, whereas additionally they beat HSBC’s by a powerful margin.
The decision
Retail banks aren’t famend for being excessive development shares. However supported by a housing market restoration — and from 2026, a predicted bounce for the UK financial system — Metropolis analysts assume Lloyds’ will take pleasure in sturdy earnings over the close to time period. Additionally they assume the financial institution ought to profit from additional price slicing (it booked £1.2bn value of financial savings in 2024).
On paper then, it may be argued that Lloyds seems engaging from a GARP perspective. However I’ve my reservations. In my view, the dangers to Lloyds’ present earnings forecasts are appreciable. I really feel the financial institution might wrestle to develop revenues given the a number of threats to Britain’s financial restoration, with mounting competitors including to the pressure.
Its internet curiosity margin (NIM) — which slumped 16 foundation factors in 2024, to 2.95% — are additionally in peril of sliding additional, because the Financial institution of England gears up for extra rate of interest cuts and aggressive pressures enhance.
Lastly, Lloyds’ earnings might take a battering if the Monetary Conduct Authority (FCA) finds the financial institution responsible of mis-selling automobile insurance coverage. The prices of the continued case to Lloyds have been put as excessive as £4.2bn by funding agency KBW, far above the £1.2bn the financial institution has put aside.
On steadiness, I feel GARP traders ought to take into account shopping for different development shares as a substitute.
