The last 12 months have included further challenges for Lloyds Banking Group PLC (LON:LLOY) (LLOY.L). The bank’s stock price started the year at around 68p, but there is still a chance that it will close the year below 50p after investor sentiment towards UK-focused companies has declined.
I believe that this trend could continue in the early part of 2019. The EU seems to be unwilling to renegotiate on the current deal. As it stands, that deal seems unlikely to make it through Parliament. As a result, no-deal or a change in Prime Minister/government continue to be possible outcomes, although the situation is clearly very fluid.
In my opinion, investors may therefore remain cautious about the outlook for Lloyds. The company seems to be performing well in my view, with it putting in place a strategy that is leading to greater efficiency, while investing heavily in growth areas such as digital opportunities. But if investors continue to be cautious about the prospect of a no-deal Brexit then a number of stocks may experience a volatile 2019 in my opinion.
In terms of the company’s valuation, I believe that its 16p decline during the course of 2018 could mean that it has a relatively large margin of safety when compared to some of its sector peers. Its price to tangible book ratio is little more than 1, while its P/E ratio of around 7 is low to my mind for a profitable company which appears to have a sound growth strategy for the long run.
Therefore, from a long-term investment perspective I’m optimistic about the investment potential for Lloyds. I feel that it has the capacity to outperform the FTSE 100 in future years. But in the near term there may be further challenges following what has been a difficult 2018 so far.