Is Brexit the biggest risk facing Lloyds Banking Group PLC?

Could Brexit hurt the investment prospects of Lloyds Banking Group PLC (LON:LLOY) (LLOY.L)?

Lloyds share price
Lloyds share price

The outlook for Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) continues to be relatively uncertain in my view. The company’s reliance on the UK economy means that it may be impacted more heavily than some of its FTSE 100 rivals by Brexit.

Of course, that could turn out to be a positive thing. Brexit may allow the UK to prosper to a greater extent than it would have done while being a member of the EU. It could lead to greater flexibility, and this could provide a growth stimulus over the long term.

In the near term, though, I think there could be disruption ahead for the UK economy. Even if a deal between the EU and the UK is signed, uncertainty may build as investors, consumers and business leaders appear to be adopting a ‘wait and see’ approach ahead of the UK’s planned departure from the EU in March.

This could hold back the economy, and may hurt the performance of Lloyds to some degree. Its shares may be demanded to a lesser extent by investors, while its products may also see demand decline if the wider economy is not performing as well as had previously been hoped.

In my view, Brexit is a known unknown. It really could turn out to be positive or negative in the long run, but with the bank appearing to have a sound growth strategy and a low valuation, I believe it may have reward potential.

Its focus on digital opportunities and efficiency could have a positive impact on the Lloyds share price in future years. A P/E ratio of around 8 suggests to me that it may offer a margin of safety at the moment, and this could help it to perform well versus index peers.

Therefore, while risks could be elevated in the short run, I believe that the stock could deliver improving performance in the long term.

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