Lloyds Banking Group is Overvalued, say Analysts

Morningstar analysts have downgraded Lloyds from three stars to two - meaning they consider the financial stock to be overvalued

Emma Wall 14 August, 2013 | 4:23PM
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Lloyds Banking Group has been downgraded by analysts who now consider the stock overvalued and have allocated it two stars. 

The stock has fallen from a four star rating in the second quarter of 2012, when the share price was less than 40p, to two stars as the share price hovers around 75p. Over the past 12 months Lloyds share price has steadily climbed, surpassing analysts' Fair Value price of 60p in May this year. 

Analysts say investors should consider selling the stock at 105p. 

Bull and bear analyst notes can be found below, further information can be found on the  Premium site

Bulls Say

Lloyds' acquisition of HBOS has made it a powerhouse in U.K. banking, controlling some 50% of the savings market.

Lloyds' funding is improving, and its goal of a 100% loan/deposit ratio in its core business has finally been met.

Asset quality has stabilized in Lloyds' core businesses.

Lloyds' focus on costs, economic profitability, and efficient growth made the company impressively profitable in the past. Lloyds will once again prove its mettle as legacy problems recede.

Bears Say

Some 8% of Lloyds' loans are impaired (as are one fifth of its wholesale loans). At best, losses will pressure profits for some time, but they may cause serious pain if the crisis in Europe deepens.

Lloyds' already-thin net interest margins will continue to shrink until interest rates rise--something that may not happen for some time if Europe's recovery remains slow.

Lloyds' reliance on government assistance in the wake of the HBOS merger means that the U.K. government now has substantial influence over the bank's business practices and makes it more likely the bank will make uneconomical business decisions.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Lloyds Banking Group PLC44.15 GBX1.10Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar