The Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price continues to be relatively unpopular among investors. It now trades at around 54p, having started the year at around 68p.
In my view, further declines could be ahead in the near term, since investor sentiment towards UK-focused shares seems to be weak. At the time of writing, there still seems to be a relatively low chance of Theresa May’s Brexit deal making it through Parliament as far as I can tell. Should it fail to be passed by MPs, there could be further instability ahead in my opinion.
This could lead to further pressure on the Lloyds share price, since it has become increasingly focused on the UK in recent years. Even though it has a P/E ratio of less than 8, I feel that investors will continue to demand a large margin of safety due to fears about the potential for a no-deal Brexit.
In my opinion, the long-term prospects for the UK economy remain relatively sound. However, many investors are fearful of a no-deal Brexit, and this could be the dominant standpoint over future months.
Lloyds, though, seems to be adopting a sound strategy which could deliver improving profitability in the long run according to my research. It has maintained a disciplined stance on costs, with reduced branch opening hours having the potential to reduce its cost to income ratio yet further. It has sought to bolster its growth outlook through the acquisition of MBNA, while also strengthening its balance sheet.
Therefore, I believe that it may be well-placed to perform well given the right economic circumstances. In the short run, they may not be present. Brexit looks set to dominant the political and economic agenda for a little while yet, with neither side really knowing how any of the scenarios will work out due to Brexit being an unprecedented event. While Lloyds may be unpopular in the short run, though, I feel that it could offer value investing potential in the long term.