Since Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) generates the vast majority of its income from within the UK, Brexit could have a bigger impact on its share price than for other FTSE 100 banking stocks.
Since the Brexit vote has now been delayed, it looks as though investors will have to wait until the New Year before more is known about whether a deal can be struck between the UK and the EU.
In my opinion, uncertainty could build over the next few months. Investors, consumers and businesses are likely to feel increasingly cautious ahead of Brexit even if a deal had been agreed well in advance. After all, it represents a significant change for the UK in my view. However, with it seeming as though it could go ‘to the wire’ in terms of timings before 29 March 2019, I wouldn’t be surprised if uncertainty is at heightened levels.
This could mean that the share prices of UK-focused companies such as Lloyds experience increased volatility. That’s even though I feel the company has a sound overall growth strategy. Investors may take the view that the business faces a difficult external environment and may therefore see a decline in its EPS growth potential.
In the long run, I believe that the bank could generate improving financial performance. It seems to have improved its balance sheet, as well as its efficiency in my view.
Alongside this, it is also investing heavily in its digital opportunities, and they could offer an additional growth catalyst over the long run. It appears to have the size and scale to invest to a greater extent in digital opportunities than some of its smaller peers, and this could provide it with a competitive advantage in future.
Therefore, while volatility could cause a further fall in the Lloyds share price in the near term, I’m optimistic about its long-term prospects.