Does Lloyds Banking Group PLC have FTSE 100-beating potential?

Could Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) outperform the FTSE 100 (INDEXFTSE:UKX)?


The prospects for the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price may be relatively difficult to predict in the short run. The company faces the prospect of weak consumer and business confidence in the UK, and this could impact on its financial performance in my view.

However, over the long run I believe it has the potential to outperform the FTSE 100 (INDEXFTSE:UKX). I think that the bank is gradually putting in place a number of growth initiatives which centre on improving efficiency and a stronger asset base.

In terms of efficiency, it has made headcount reductions in recent years so that it has one of the lowest cost to income ratios in the FTSE 100 banking sector. And with its decision to invest in digital opportunities to a greater extent in future, I think that the bank could become increasingly efficient. It may be able to close more branches, with customers seeking mobile opportunities to a greater extent.

Lloyds has also made asset disposals as part of a focus on having a stronger risk/reward ratio. Although this has meant that it is now almost solely focused on the UK for its income, I feel that it is in a better position to generate rising EPS over the medium term. Sure, the weakening outlook for the UK economy may hold back its performance to some degree, but the acquisition of MBNA, for instance, could provide a growth catalyst over future years.

With the Lloyds share price having fallen in recent months, it now has a dividend yield of around 6%. To my mind, this indicates that it could offer good value for money, as well as improving total return potential. As a result, I’m upbeat about its capacity to outperform the FTSE 100 in the long run, but volatility may remain a part of its short-term future due in part to Brexit-related uncertainty being present.

About Robert Stephens 5151 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 [email protected] or use one of the other contact methods available on the 'Contact Us' page