Why I’m Surprised By The Valuations Of These 4 Shares: Lloyds Banking Group PLC, easyJet plc, Next plc And Royal Mail PLC

These 4 share prices are lower than I expected: Lloyds Banking Group PLC (LON:LLOY) (LSE:LLOY.L), easyJet plc (LON:EZJ) (LSE:EZJ.L), Next plc (LON:NXT) (LSE:NXT.L) and Royal Mail PLC (LON:RMG) (LSE:RMG.L)

Lloyds Banking Group PLC
Lloyds Banking Group PLC

With UK share prices moving higher this year, I’m surprised at some of the valuations I’m finding. I understand Brexit is causing some uncertainty, but nevertheless I had thought it would be more challenging that it was to find 4 shares with what I feel are relatively low valuations.

For example, the Lloyds Banking Group PLC (LON:LLOY) (LSE:LLOY.L) share price has gained 11.7% since the start of the year. However, it still has a P/E of around 10. In my view, that’s relatively low given the improvements made to its balance sheet, risks and efficiency since the GFC. Although Brexit may mean lower economic activity over the next few years which could affect the Lloyds share price and performance, I think it has a margin of safety which could mean it performs well on a relative basis.

The Next plc (LON:NXT) (LSE:NXT.L) share price has move in the opposite direction to the Lloyds share price. Next shares are down 22% since the start of the year. In my opinion, that’s understandable because consumer confidence in the UK is weak. Next has also warned of difficulties in the UK retail sector since last year, so I don’t think it’s all down to Brexit uncertainty. I like Next because it has good cash flow and a strong brand in my view, so I believe its share price could perform relatively well.

Royal Mail PLC (LON:RMG)( LSE:RMG.L) also faces a difficult outlook. Demand for letters is falling and I believe this is a long-term trend which is unlikely to be reversed. However, I believe Royal Mail is doing the right thing by refocusing on potential growth areas, such as its European operations. I feel they could mean it benefits from positive forex translation. Its shares have a P/E of about 10, which I think gives them investment appeal.

easyJet plc (LON:EZJ) (LSE:EZJ.L) is another stock price which has underperformed in 2017. Although it’s up 1%, it’s behind many of its large-cap peers. There are clear reasons for this in my opinion, with weak consumer confidence being one of them. However, I think there could be investment appeal in easyJet’s long term outlook. I like its budget offering and think it will remain popular over future years. I also feel its rising dividend could help to increase its share price, which has a P/E of under 10 at this moment in time.