Last year was clearly a tough year for the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price. It came under significant pressure in the second half of the year in particular, with investor sentiment towards UK-focused shares deteriorating.
In my opinion, it could unfortunately be a case of ‘more of the same’ in the first half of the new year. Politicians seem to be unable to find a deal on Brexit, but yet they appear to believe that a no-deal Brexit would be bad news for the economy. The end result could be further uncertainty that causes investors to become less positive about the outlook for the UK economy, as well as the stocks which rely on it for their sales.
Among those is Lloyds, which generates almost all of its income in the UK. This may mean that is has less diversity than many of its FTSE 100 industry peers. But I feel that it has put in place a sound strategy which could lead to improving profitability over the long run.
For instance, it has been able to reduce headcount over recent years so that it now has a relatively low cost to income ratio. It has also strengthened its balance sheet, which has led to improved performance versus some sector peers in bank stress tests. And with investment in its digital opportunities as well as in acquisitions such as MBNA, I believe that the company is moving in the direction in terms of its strategy.
With a P/E ratio of around 7, I think that the Lloyds share price could offer good value for money in the long run. This year, though, could continue to be volatile for the bank, with investor sentiment appearing to be weak at the moment. Therefore, while I am optimistic about its prospects in future years, I’m cautious about its outlook over the next few months.