Does an 8% rise in Lloyds Banking Group PLC’s share price suggest it is on the road to recovery?

Does Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) offer improving investment prospects?

Lloyds share price
Lloyds share price

In the last two weeks the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price has risen by around 8%. That’s a strong performance in my view, and has taken me by surprise.

I had felt that the FTSE 100 and FTSE 250 could be relatively weak in the early part of 2019. I believed that UK-focused stocks in particular could come under pressure as investors began to factor in the potential risks from Brexit.

However, many stocks have experienced positive performances in the last few trading sessions. I wouldn’t be surprised, though, if there is volatility ahead for a variety of UK-focused stocks in particular.

The main reason for this is that I think that the UK faces significant political risk at the moment. The Prime Minister’s deal on Brexit seems likely to fail to achieve a majority in the House of Commons, and an alternative deal may be difficult to achieve. It will require cross-party support, which seems to be lacking.

As a result, I believe it is too soon to say that the Lloyds share price is on the road to recovery. I believe that the company faces external risks, but that it continues to make progress from a business perspective.

It seems to be improving its balance sheet, while reducing costs through employing an increasingly digital-focused strategy. A planned investment in its digital offering of up to £3 billion could strengthen its position versus smaller peers in an era where innovation and technological change in the banking sector are moving at a fast pace.

Since Lloyds still has a P/E ratio of around 8 even after its recent share price rise, I believe it could offer good value for money for the long run. In my eyes, it still has recovery potential, but in the short run there could be volatility ahead.

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