What is LLOY.L's Intrinsic value?

Lloyds Banking Group PLC (LLOY.L) Intrinsic Value Analysis

Executive Summary

As of May 22, 2025, Lloyds Banking Group PLC's estimated intrinsic value ranges from $67.75 to $78.37 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $78.37 +0.5%
Dividend Discount Model (Stable) $67.75 -13.1%

Is Lloyds Banking Group PLC (LLOY.L) undervalued or overvalued?

With the current market price at $77.98, the stock appears to be fairly valued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Lloyds Banking Group PLC's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 4.0% 4.5%
Equity market risk premium 6.0% 7.0%
Adjusted beta 1.36 1.54
Cost of equity 12.1% 15.8%
Cost of debt 5.0% 5.0%
Tax rate 16.7% 20.8%
Debt/Equity ratio 2.72 2.72
After-tax WACC 6.3% 7.1%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 33.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 13.9%
  • Long-term growth rate: 2.0%
  • Fair value: $78.37 (0.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 15.8% (Low) to 12.1% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $44 to $92
  • Selected fair value: $67.75 (-13.1% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $46593M
Enterprise Value $162336M
Trailing P/E 8.41
Forward P/E 9.08
Trailing EV/EBITDA 0.00
Current Dividend Yield 407.92%
Dividend Growth Rate (5Y) -2.11%
Debt-to-Equity Ratio 2.72

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $15.67
Dividend Discount Model (Stable) 43% $10.16
Weighted Average 100% $73.82

Investment Conclusion

Based on our comprehensive valuation analysis, Lloyds Banking Group PLC's weighted average intrinsic value is $73.82, which is approximately 5.3% below the current market price of $77.98.

Key investment considerations:

  • Overall financial health and market position

Given these factors, we believe Lloyds Banking Group PLC is currently fairly valued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.