The prospects for the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price continue to be relatively uncertain in my view. Its significant exposure to the UK economy means that it could be hurt by the potential risks that are present ahead of Brexit.
The IMF recently downgraded the UK’s GDP growth forecast, which suggests that the uncertainty surrounding Brexit is not helping business confidence. Consumer confidence is also weak, while investors appear to be including a discount to intrinsic values when it comes to valuing UK-focused stocks.
Lloyds is one example of that in my view. It has a price to tangible book ratio of around 1.1, which suggests to me that there could be a margin of safety on offer at the moment.
Of course, the company’s recent update showed that it continues to make progress with its strategy. It is becoming more efficient, and there could be further cost-cutting potential ahead. Consumers are using branches less frequently, and are demanding greater access via mobile apps. A shifting of resources from branch to digital could lead to a lower-cost business which is better able to deliver profit growth over the medium term in my view.
Clearly, a slowdown in the UK economy could hurt the Lloyds share price. In my view, though, the prospects for the bank in the long run could be relatively bright. It is making progress with its strategy and is expected to report rising profitability in the next financial year.
Sure, there could be further volatility and more share price falls ahead in the near term. But with a 6% dividend yield and what appears to be a low valuation, I’m upbeat about the prospects for the business. I believe that it could perform well versus its FTSE 100 banking sector peers over the coming years.