Lloyds Banking Group sell rating persists despite 151% five-year return

The Lloyds Banking Group sell case has hardened even as LLOY has handed long-term holders a 151% gain over five years, with every £1,000 invested in mid-2020 worth approximately £2,510 today. The question for investors sitting on those profits is whether the thesis has run its course.

Shore Capital’s sell rating and the valuation problem

Shore Capital originally downgraded Lloyds to Sell on 2 February 2026, raising its price target from 84p to 91p to reflect upgraded return forecasts. The bank has since reiterated that Sell recommendation. At a current share price of around 110p, the 91p target implies roughly 17% downside from here.

Shore Capital’s reasoning was not that the underlying business is struggling, but that first-quarter results were strong and the share price had already absorbed them. By the time half-year figures were reported on 30 July, Lloyds was trading at 1.9 times net asset value, even after adjusting for the ongoing share buyback. NatWest sits at a broadly similar multiple. Barclays trades at 1.2 times net assets, though that discount partly reflects the greater risk profile of its international and corporate banking book.

The full-year 2025 results offer some support for the bulls. Statutory profit before tax rose to £6,661 million from £5,971 million in 2024. The net interest margin expanded to 3.06% from 2.95%, and the cost:income ratio improved to 58.6% from 60.4%. Earnings per share reached 7.0p, up from 6.3p the prior year.

On capital returns, the group paid total shareholder distributions of £3.9 billion in 2025, up 7% versus 2024, and has returned approximately £15 billion to shareholders since 2021. The total ordinary dividend for 2025 is 3.65 pence per share, including a final dividend of 2.43 pence, with a share buyback of £1.75 billion, up from £1.70 billion in 2024.

Motor finance provisions cloud the Lloyds Banking Group sell debate

The car loan mis-selling liability has moved from a contingent risk to a crystallised one. As at 31 December 2025, Lloyds had recognised a total provision of £1,950 million for motor finance commission arrangements, according to its SEC 6-K filing. Of that, £800 million was added in the third quarter of 2025 following the Financial Conduct Authority’s announcement that it intends to implement a motor finance commission redress scheme. The FCA has estimated the total industry bill at approximately £11 billion, describing it as potentially one of the costliest consumer scandals in British finance. Some commentators suggest the process could run until 2028 before final resolution.

The provision already exceeds the £1.5 billion that Citi and Jefferies had modelled as their base-case expectation in October 2025. That the actual figure landed higher suggests the liability is not yet a clean line.

What the broader analyst community makes of LLOY

Despite the sell-side caution from Shore Capital, the overall picture from the wider analyst community remains constructive. Based on the past three months of ratings, the consensus stands at Buy, with 13 Buy ratings, 5 Hold ratings, and 1 Sell rating. The 12-month average price target is 121.26p, implying approximately 9.39% upside from current levels, with a range of 53p to 140p across the surveyed analysts.

Management’s own targets are ambitious. For 2026, Lloyds has upgraded its return on tangible equity target to greater than 16%, from the prior greater than 15%, and expects revenues from strategic initiatives of approximately £2 billion, exceeding its initial £1.5 billion target. The group is also targeting a cost:income ratio below 50% in 2026, against the 58.6% recorded for 2025.

Whether those targets prove achievable depends partly on the macro environment and partly on how the motor finance redress scheme is structured. The former is unknowable; the latter is in the regulator’s hands.

For income investors, the dividend trajectory is still intact. For those who bought at lower prices and are now sitting at stretched valuations, the 1.9 times NAV multiple leaves limited room for error if UK rate expectations shift or if the motor finance liability expands further. The next test is the FCA’s formal redress scheme detail, expected in the coming months, which will either close the book on a known cost or reopen the question of whether £1,950 million is enough.