The Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price has been relatively volatile in recent trading sessions. Brexit and the future uncertainty surrounding the UK’s economic prospects seems to be a key reason for this.
The bank, of course, is UK focused. It generates almost all of its income from the UK, and so the political and economic outlook for the country is likely to impact it to a greater extent than some of its more international FTSE 100 peers in my view.
Clearly, the Brexit situation is very fluid. In the near term I expect additional volatility to be present for a number of FTSE 100 and FTSE 250 shares which are dependent upon the UK for their income. It is unclear how the UK economy will perform in future months, and this could lead to investors requiring larger margins of safety in company valuations.
In the long run, I feel that the Lloyds share price could offer investment appeal. While potentially volatile, it continues to have a relatively low valuation. For instance, it has a P/E ratio of under 8 at the moment, while its dividend yield is in excess of 6%. A price to tangible book ratio of under 1.1 suggests that the stock could be trading below its intrinsic value in my view.
Further, its investment in areas such as digital opportunities and customer service improvements could lead to a stronger bank in the long run. In time, this could allow it to improve its position versus peers in what is a highly competitive banking sector.
Therefore, while Brexit could cause further declines in the Lloyds share price in the short run, I believe that it may have investment potential for the long term. A low valuation and what seems to be a sound strategy could combine to deliver relatively strong performance versus the wider FTSE 100.