Can Lloyds Banking Group PLC gain 35% to recover from its 12-month decline?

Does Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) offer turnaround potential?

Lloyds Banking Group PLC
Lloyds Banking Group PLC

Last year was a difficult one for the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price. The company’s market value declined from 67p per share to 50p per share. In order for it to undo this fall it would therefore need to rise by around 35%.

In my opinion, the FTSE 100-listed bank has the potential to achieve that level of growth over the medium term. I feel that it has been able to put in place a sound strategy which could lead to improving financial performance.

For instance, it has rationalised its asset base over recent years, while also acquiring MBNA. This could provide it with growth catalysts at a time when the UK banking industry is undergoing significant change.

The investment being made by the company in its digital opportunities could help it to remain relevant at a time when customers are favouring mobile apps over branches. And while challenger banks remain a threat, the financial strength of Lloyds could help it to retain a dominant position as banking becomes increasingly digitalised.

In terms of its near-term prospects, though, I remain unsure about the upside potential on offer. Brexit is likely to dominate the political and economic agenda over the short term, and this may cause investors to adopt a cautious stance towards companies with UK exposure. The volatility experienced in 2018 could therefore continue over future months in my view.

In spite of this, I remain optimistic about the prospects for the Lloyds share price. With a P/E ratio that is in the single digits and a price to tangible book ratio that is less than 1, I believe that it may offer a margin of safety. Although there may be further challenges ahead, the company’s strategy and valuation suggest to me that it may have long-term recovery potential.

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