Key Morningstar Metrics for Lloyds Banking Group
- Fair Value Estimate: GBX 78.00
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Medium
What We Thought of Lloyds Banking Group’s Earnings
Lloyds Banking Group LLOY reported second-quarter underlying profits of GBP 2.029 billion versus GBP 1.754 billion consensus expectations collected by the bank. Operating expenses and loan losses came in below expectations. Income generation was good, with other income outpacing net interest income.
Why it matters: Lloyds is diversifying its income stream away from its net interest income business, primarily mortgages, toward more fee-income-based revenue. Progress on this front is promising, with about half of future revenue growth expected to be fee-based.
- Lloyds has been investing into the business, putting short-term strains on its efficiency metrics. However, the investments are paying off with cost savings compensating for inflationary impacts and restructuring charges. At the same time, top-line growth is set to improve efficiency again.
- Loan loss impairments of GBP 133 million included a GBP 44 million macroeconomic scenario adjustment release as the outlook for housing prices improved. Loan losses are tracking at 19 basis points for the first half of 2025, below full-year guidance of 25 basis points.
The bottom line: We maintain our GBX 78 per share fair value estimate and our narrow moat rating. Shares are fairly valued.
