Could the Lloyds Banking Group PLC share price sink further due to Brexit fears?

Could Brexit have a negative impact on the prospects for the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price?




Lloyds share price
Lloyds share price

The Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price could experience a period of increased volatility in the near term in my view as a result of Brexit. The bank generates the vast majority of its income from the UK, and so it may be more dependent on the outcome of the Brexit process than some of its FTSE 100 industry peers.

At the moment, the prospect of Theresa May’s Brexit plan gaining a majority in Parliament seems to be limited. The major political parties are against it, while a sizeable minority of Conservative MPs have said they intent to vote against it. Given that we have a minority government, this does not suggest to me that there is a high chance of it gaining even a slim majority.

As a result, I think the Lloyds share price could come under further pressure in the near term. There are significant fears about how the UK economy could perform in a no-deal scenario, and those fears on their own could be sufficient to create a tough period for the UK economy and UK-focused shares. Even if a no-deal Brexit proves to be a good thing for the UK economy, a state of fear could offset this in the short term at least.

Although Lloyds currently has a P/E ratio of around 8, I feel that investors may yet demand a larger margin of safety. In the long run, though, such a valuation suggests to me that it may offer investment appeal. It also yields 6% and has a price to tangible book ratio of around 1, which indicates to me that it may offer good value for money.

In the near term, though, it could experience further challenges after a tough 2018. But looking a number of years ahead, I believe that the bank has a sound strategy and that its low valuation could offer investment appeal.




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