The share prices of UK-focused companies such as Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) have continued to come under pressure in recent trading sessions. Investors seem to be uncertain about the outlook for the UK economy at a time when political risk is relatively high.
In my view, uncertainty surrounding Brexit could mean that investors continue to adopt a cautious stance towards the bank’s shares. This could mean that they deliver further falls in the near term, and that their performance could be volatile.
Lloyds, though, seems to have the right strategy to cope with what may prove to be a period of major change for the UK economy. It has focused on strengthening its capital ratios in recent years, while becoming increasingly efficient. According to my research, it has performed relatively well in bank stress tests versus sector peers, while it has been able to adopt what I view as a sensible growth strategy.
For instance, it is seeking to adapt to changing consumer tastes through investment in its digital offering. It is also aiming to improve customer service levels at a time when the sector faces increasing levels of competition. And with it having acquired MBNA, it could have an improving long-term growth outlook in my opinion.
Since the Lloyds share price has fallen in recent trading sessions, it now has a price to tangible book ratio which is only slightly higher than 1, while its P/E ratio of just over 7 suggests to me that it may offer a margin of safety at the moment.
Since the bank is focused on the UK, it could be impacted by weaker investor sentiment towards companies that are reliant on the UK for their sales. But in the long term, I’m, cautiously optimistic about its investment prospects when compared to the wider FTSE 100 as a result of its valuation and overall strategy.