Why has Lloyds Banking Group PLC slipped 30% in 3 years?

Is improving performance ahead for Lloyds Banking Group PLC (LON:LLOY) (LLOY.L)?




Lloyds
Lloyds

The last three years have been tough for investors in Lloyds Banking Group PLC (LON:LLOY) (LLOY.L). The company’s share price has fallen by 30%, with it dropping from around 74p to its current level of 52p.

The progress of the business during that time has been relatively impressive in my view. It has been able to reduce costs in order to lower its cost to income ratio. There has also been a strengthening of its balance sheet in my opinion, with it performing relatively well versus sector peers in stress tests.

Further, Lloyds has been able to improve its financial performance, with it now being a more profitable business. Its acquisition of MBNA could strengthen its profitability in future years, while an investment of around £3 billion in digital opportunities may act as a catalyst over the long run when it comes to EPS growth.

In spite of the positive changes made by the business in recent years, difficult operating conditions have caused investor sentiment to decline in my opinion. Brexit seems to be weighing on the valuations of a number of FTSE 100 shares which have significant exposure to the UK. And with the Brexit process set to remain uncertain over future months in my opinion, it wouldn’t surprise me if the Lloyds share price comes under further pressure.

Sure, it has a price to tangible book ratio of around 1, while its P/E ratio of 7.5 is one of the lowest I can find in the index. But with investor sentiment being weak, its stock price could still fall further.

In the long run, of course, I believe it can recover from its 30% fall in three years. I think it has a sound strategy which could boost its financial prospects. But with an uncertain economic and political outlook, I believe it may take time for it to deliver improving share price performance.




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 info@investomania.co.uk or use one of the other contact methods available on the 'Contact Us' page