UBS upgrades Lloyds to ‘buy’ with 115p target as first-quarter beat highlights valuation opportunity Proactive uses images sourced from Shutterstock
High street bank’s shares trade at 6% discount to sector despite forecast earnings growth of 17% and a 10% distribution yield
UBS has upgraded Lloyds Banking Group PLC (LSE:LLOY) to ‘buy’ and raised its price target to 115p from 110p, arguing that weak sentiment towards UK domestic banks has created an attractive entry point into a franchise offering sector-leading earnings growth and a double-digit distribution yield.
The Swiss bank’s analysts Jason Napier and Sanjena Dadawala said Lloyds is trading at a 6% discount to European banking sector peers on 2027 earnings, at 8.5 times forecast earnings per share against a sector average of 9.0 times, despite what UBS described as stronger growth prospects than that valuation implies.
The upgrade, from ‘neutral’, came after a first-quarter profit beat that UBS said reinforced its positive view, with Lloyds reporting underlying profit before tax 6% ahead of consensus at £2.005 billion, driven by impairment charges that came in 22% below market expectations despite a £101 million net charge related to updated macroeconomic scenarios.
Net interest income was in line with forecasts, with the bank’s net interest margin rising 7 basis points quarter on quarter to 317 basis points, and full-year net interest income guidance was nudged up to more than £14.9 billion from approximately £14.9 billion previously.
UBS raised its earnings per share forecasts by 3% to 4% across 2026 to 2028, citing higher income and increased buyback expectations, and said it expects Lloyds to compound earnings per share at 17% annually between 2025 and 2028.
The Swiss investment bank said a strategic update scheduled for 30 July alongside half-year results represents a positive catalyst, at which management is expected to set out a roadmap for double-digit earnings growth, improving efficiency, and a return on tangible equity approaching 20% by 2030, supported by investment in artificial intelligence, wealth management and insurance.
Lloyds shares are currently trading at 97p, giving a forecast total return of approximately 20% to UBS’s 115p target, inclusive of a projected distribution yield of around 10% in the current financial year.