Editor's Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Morningstar’s Metrics for Lloyds
- Fair Value Estimate: GBP 78.00
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Medium
What We Thought of Lloyds’ Earnings
Lloyds LLOY reported underlying profits of GBP 1.53 billion for the first quarter of 2025, down 13% versus the same period a year ago. Higher loan losses this year, driven by a GBP 100 million overlay charge to cover potential tariff-induced risks, drove the divergence in performance versus last year. However, loan losses of 27 basis points were decent. Last year, the bank also booked reversals in its commercial banking unit, which made for a difficult comparative base. Lloyds continues to guide for a 25-basis-point loan loss ratio for the year.
We maintain our fair value estimate and narrow moat rating. Operating performance was decent. Net interest income grew by 3% to GBP 3.29 billion, supported by the structural hedge. Mortgage and deposit growth of 2% and 1%, respectively, were good, given market conditions. Other income grew by 8% to GBP 1.45 billion. Progress in increasing the firm’s non-interest-rate-related income share has seen a step change in performance in the first half of last year but has slowed since. We expect scrutiny of Lloyds’ ability to diversify its income streams away from interest-rate-dependent mortgage lending to increase again.
Operating costs increased by 6% to GBP 2.55 billion, half of which was severance pay and strategic costs, as was expected. Operating cost guidance of GBP 9.7 billion for the full year was unchanged.
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