Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) continues to offer investment appeal in my view. Its share price performance may have disappointed in recent months, but it seems to have the financial strength and strategy to generate improving stock price performance over the medium term.
For instance, it has performed relatively well in recent stress tests. This could be viewed as an achievement in itself, with it being in a tough position after the financial crisis. Since then, it has been able to improve its capital ratios and, following the end of part-government ownership, seems to be in a good position to deliver earnings growth.
Alongside this, the Lloyds share price could benefit from the company’s strategy. Its decision to focus almost exclusively on the UK may be viewed as risky, but the company has a dominant position in the local market which could provide it with a competitive advantage. This may become particularly relevant as challenger banks grow in size and scale.
Sure, in the near term there could be uncertainty ahead caused by Brexit. But I feel that the prospects for the UK economy may be stronger than many investors are pricing in, with a favourable deal between the UK and EU relatively likely due to the impact of an alternative on both economies. Put another way, politicians on both sides are unlikely to create economic challenges which, for the most part, are avoidable.
Since the Lloyds share price has failed to generate capital growth in recent months, it remains a strong recovery opportunity in my eyes. Its PE ratio of 11 and dividend yield of over 5% suggest that it could have a large margin of safety. As a result, its risk to reward opportunity seems favourable, and this could make it a relatively exciting share within the FTSE 100.