Is the Lloyds Banking Group PLC share price undervalued?

Could Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) deliver improving share price performance?




Lloyds
Lloyds

The Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price currently trades at around 57p. This is significantly down on its level from the start of the year, with risks facing the UK economy seemingly holding back investor sentiment towards the bank.

In my view, there is a risk that this trend will continue over the near term, with consumer and business confidence being weak at the moment. Since the bank generates around 97% of its income from the UK, this could mean that it experiences a challenging operational outlook.

That said, I remain upbeat about the bank’s long-term potential. Although it experienced a tough period during the financial crisis, it may have afforded the company the opportunity to make major changes that have led to it having a relatively strong balance sheet and efficient business model.

For instance, Lloyds has made major headcount reductions, while also strengthening its capital ratios. It has acquired MBNA, which could act as a growth catalyst over the medium term. It has also sought to invest in customer service in an attempt to build a stronger competitive advantage.

However, the main catalyst behind the company’s growth could be its decision to invest up to £3 billion in digital opportunities. With consumers demanding greater mobile access to their accounts, the company’s decision to close branches and invest in the digital side of its business could improve customer loyalty, while also reducing costs.

Although the outlook for the UK economy is uncertain at the moment, Lloyds seems to be performing relatively well according to its recent update. With a single-digit P/E ratio and a dividend yield of around 6%, I feel that it may offer good value for money. Therefore, while potentially volatile in the short run, I’m optimistic about its capacity to generate improving total returns in the long run.




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