UPDATE: New reports confirm that while Lloyds Banking Group (LSE:LLOY) has seen a remarkable rise in share value, two lesser-known banks could potentially outperform it by 2026. Investors are now urged to consider alternatives as Lloyds’ growth may be reaching its peak.
Lloyds shares have surged, buoyed by strong earnings recovery and increased dividends, but the stock is no longer a bargain. Currently trading at 12.8 times forward earnings, analysts predict this will drop to 9.9 times in the next three years. The dividend yield, now at 3.8%, has decreased from nearly 6%, suggesting limited near-term price appreciation.
Investors looking beyond the FTSE 100 should take note of TBC Group (LSE:TBCG), a Georgian lender with a growing presence in Uzbekistan. TBC currently trades at a striking 5.1 times forward earnings, a significant discount compared to its UK counterparts. Despite recent underperformance, forecasts indicate a robust revenue growth of 17.5% over the next two years, placing TBC among the fastest-growing companies in the FTSE All Share.
Earnings growth for TBC is expected to average 11% annually, resulting in a forward PEG ratio of approximately 0.45. With a forward yield of around 6% and strong dividend coverage, TBC presents a compelling investment opportunity, although risks such as regulatory changes in Uzbekistan and political uncertainty in Georgia remain.
Another bank making waves is Arbuthnot Banking Group (LSE:ARBB). This AIM-listed lender has lagged in share price growth but has consistently increased dividends. The forward yield exceeds 6%, with a dividend cover forecast at just over two times. Arbuthnot’s shares trade at around eight times forward earnings and just 0.52 times book value, significantly below its FTSE 100 peers.
With a conservative loan-to-deposit ratio of 57.6%, Arbuthnot provides a solid liquidity buffer against economic downturns. However, its size and liquidity may deter some investors, given the differences in buying and selling prices.
As Lloyds remains a solid business, the potential for TBC Group and Arbuthnot to outperform is significant. Investors are encouraged to explore these opportunities as we approach 2026, as they could offer better risk/reward profiles than Lloyds.
For investors considering their next move, now is the time to evaluate these options closely. The landscape is shifting, and those who act quickly could reap substantial benefits.
