Why Lloyds Banking Group PLC is my favourite bank share

I think Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) has investment appeal

Lloyds Banking Group PLC
Lloyds Banking Group PLC

I’m optimistic about the prospects for the banking sector, but I’m more upbeat about the future for Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) than any other UK-listed bank.

I think there is value appeal across the sector, but probably no more so than for Lloyds. It has a P/E of less than 10 and while I can understand why it trades at a discount, I feel it could offer capital gain potential in the long run.

The reason I can understand its low valuation is its UK exposure. Unlike banks such as HSBC and Standard Chartered which have strong positions in a fast-growing Asian economy, Lloyds is focused on the UK. It generates 97% of its business from within the UK, and since Brexit is causing concerns for many investors I can appreciate why the bank has a relatively low valuation.

In my opinion, there could be more uncertainty regarding Brexit in the short run. I feel business and consumer confidence may be hurt by rising inflation, and this could lead to some difficulties for a range of companies and sectors in the UK. This could include Lloyds to my mind.

However, I feel Lloyds has a positive long term outlook. I think a good deal between the UK and EU could be signed, since it is in both their interests to do so. I also feel the bank has a good strategy which has focused on efficiencies and bolstering its financial strength. While not making it immune to economic difficulties, I think this could improve its performance on a relative basis.

I’m also upbeat about Lloyds because of its income prospects. It has a dividend yield of around 6% using 2017’s forecast payments, which is one of the highest yields I can find among large-cap shares.

Therefore, while I think there are a number of banks with bright futures in the sector, Lloyds is my preferred option for the long term at this moment in time.

About Robert Stephens 3395 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email info@investomania.co.uk or use one of the other contact methods available on the 'Contact Us' page