Does Lloyds Banking Group PLC have the right strategy to cope with Brexit?

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

Lloyds Banking Group PLC
Lloyds Banking Group PLC

Fears surrounding Brexit continue to push the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price lower in my view. It is now at 53p having started the year at 68p.

In the short run, I wouldn’t be surprised if there is further volatility for the company. Investors seem to be cautious about the investment prospects for a number of UK-focused companies. And with there being a lack of clarity on whether there will even be a deal between the UK and the EU, there could be a period of uncertainty ahead in my opinion.

That said, I still remain cautiously optimistic about the investment prospects for Lloyds. I believe that it has focused in the right areas in terms of its strategy. For instance, it has sought to improve its balance sheet strength in recent years. This has involved boosting its capital ratios, with its performance in stress tests suggesting that it is relatively strong when compared to some of its FTSE 100 peers.

The bank has also reduced its costs at a time when the wider industry has become increasingly crowded and competitive. Its cost to income ratio is among the lowest in the FTSE 100, and this could move even lower as it delivers on its branch closures and digital becomes a larger focus for the business.

On the topic of digital, Lloyds is seeking to invest up to £3 billion in improving the customer experience in this area. This could catalyse its financial performance at a time when customer tastes are changing rapidly in terms of using mobile apps versus going to a branch.

Therefore, while Brexit may cause a period of uncertainty, I think that the company could have a bright long-term future. Its share price may come under further pressure in the near term if the operating environment declines, but its valuation suggests to me that it may deliver a recovery in future years.

About Robert Stephens 5430 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 or use one of the other contact methods available on the 'Contact Us' page