Having declined during the course of 2018, the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price may not appear to offer high reward potential at first glance.
After all, the bank faces an uncertain outlook in my view, with the Brexit process having the possibility of causing weaker consumer and business confidence. And with there being no certainty that a deal will pass through the House of Commons, I think future months could include a period of uncertainty for the stock.
That said, the company’s most recent update suggested that it is not yet suffering from a slowing UK economy. Rather, it seems to be becoming increasingly efficient and financially stronger according to my research. This could mean that it is able to post improving returns over the long run in my view.
Aiding it in this regard could be the strategy being pursued by Lloyds. It has a relatively ambitious growth plan, with its acquisition of MBNA and decision to invest up to £3 billion in digital opportunities having the potential to catalyse its financial prospects. Alongside this, it is adapting to changing consumer tastes, with branches closing and its mobile app becoming a more important part of the business as people demand a more omnichannel experience with their bank.
Given that the Lloyds share price trades on a price to tangible book ratio that is less than 1.1, I feel that it may offer a margin of safety at the moment. This could lead to a more favourable risk to reward ratio, which could translate into improved share price performance.
Clearly, the stock is relatively dependent on the performance of the UK economy. While there could be further ups-and-downs ahead depending on how Brexit turns out, I feel that in the long run the stock could deliver improving returns after what has been a challenging period.