- Pre-tax profit of £2 billion between April and June easily beats forecasts
- Outcome is the best for the bank since the first quarter of 2022
- Net interest margins hold up well
- No sign of any worsening in the loan book and conduct fines remain low
- Shares trade at highest mark since 2015
“Lloyds’ share price seems unimpressed but the bank’s second quarter profit of £2 billion is its best result since Q1 2022 and more than enough to justify a hefty increase in the first-half dividend and an ongoing share buyback programme,” says AJ Bell investment director Russ Mould.
“The muted share price response may simply be the result of its strong recent run to ten-year highs, a surge which means the stock is no longer as cheap as it was. Of the big five FTSE 100 banks, only Barclays now trades below net asset value per share, a huge turnaround and one that signifies a return to favour for the lenders among investors.
Source: LSEG Refinitiv data
“Pre-tax income came in 17% higher than a year ago and well above the consensus analysts’ forecast of £1.7 billion for the second quarter.
“In the absence of any economic upset or fresh litigation and conduct concerns Lloyds is producing pretty consistent profits in or around the £2 billion-per-quarter range.
Source: Company accounts
“The second quarter showed no further provisions for any conduct issues, including the ongoing Financial Conduct Authority investigation into the car financing market and discretionary commission arrangements (DCA). Better still, from the point of view of not just management and shareholders, but policymakers and politicians as well, loan losses remain subdued to suggest the UK economy is yet to see any sort of serious downturn, despite the torpid headline GDP growth numbers.
Source: Company accounts
“Net interest income and net interest margins are stabilising, to provide further support for profits, although the trajectory of the Bank of England base rate and bond yields could have a say here, even allowing for Lloyds’ use of hedges to mitigate the impact of lower headline borrowing costs.
“Net interest income came in at £3.3 billion and net interest margin at 3.04%, slightly higher than in the first quarter and the best percentage return on the loan book since the third quarter of 2023, despite a full percentage point of interest rate cuts from the Bank of England over the past year.
Source: Company accounts
“The stabilisation of net interest margins, coupled with low loan losses and conduct costs and an ongoing efficiency drive, should help to support earnings. Analysts currently expect a modest increase in full-year pre-tax income for 2025, to £6.3 billion compared to £6 billion in 2024, before a bigger advance in 2026. Note that Lloyds is now making more pre-tax profit in a single quarter than it did in the whole of 2015.
Source: Company accounts, Marketscreener, analysts' consensus forecasts
“The foundations for that seem to be in place, especially as growth in both loans and deposits is accelerating, although neither management nor shareholders are likely to give way to complacency, given the apparent downward trend in Bank of England base rates, competition between established and challenger lenders, regulatory pressure and lingering concerns over the trajectory of the UK economy.
Source: Company accounts
“The share price is not responding to the second-quarter figures with much enthusiasm, even though chief executive Charlie Nunn’s outlook statement reads well. This may simply be the result of how well the shares have done in the past couple of years. Their surge to levels last seen in 2015 means they now trade at more than a 40% premium to their latest tangible net asset, or book, value per share figure of 54.5p.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Price/NAV based upon last historic published number (Q2 2025 for Lloyds, Q1 for the others)
“The good news, at least, is that net asset value per share grew again in the second quarter (although progress over the past five years has been negligible).
Source: Company accounts
“In addition, the shares could continue to draw support from the company’s dividend and share buyback plans. If analysts’ consensus forecasts of a 10% increase in the full-year dividend to 3.5p per share for 2025 are correct, then the payment would be worth around £2 billion. The bank is also running a share buyback this year, which analysts believe will take total cash returns to £3.8 billion, or more than 9% of Lloyds’ current stock market valuation.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts.
“The bank is also running a share buyback this year, which analysts believe will take total cash returns to £3.8 billion, or more than 9% of Lloyds’ current stock market valuation.”
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, LSEG Refinitiv data
