How will Lloyds' share price fare once Brexit finally takes shape?
Despite Theresa Mays resignation, the markets are still pricing in an orderly Brexit  and Lloyds's [LLOY] share price looks well placed to capitalise as the picture becomes clearer. In the face of these lighter-than-expected Brexit pressures, Lloyds Banking Group may be one to benefit, as the firm looks set to prove its financial durability ahead of smaller disruptors. Lloyds 1-year share price performance, CMC Markets, 29 May 2019  Indeed, UK banks outperformed their European peers in 2018, in part due to a narrowing of the Brexit discount built into share prices as the probability of no-deal diminished. This has led Deutsche Bank analysts to suggest that the fundamentals are better for British lenders than for their Euro counterparts  or even more international firms like HSBC Holdings PLC [HSBC]. For Lloyds to realise any upside, certainty around Brexit will be required. The bank's share price currently has a P/E Ratio of 10.45, while its position on the LSE is largely in the middle of its 52-week range (49.51-66.79p) at 57.50p, having fallen 7.5% from 29 March  the date the UK was originally due to leave the EU. Uncertainty  which has only increased over the weekend  is likely responsible for these depressed prices. Market cap  40.80bn PE ratio (TTM) 10.45 EPS (TTM) 5.50 Operating margin (TTM) 34.50%  Lloyds share price vitals, Yahoo finance, 29 May 2019  The case for consolidation  With the largest firms generally best placed to weather political and economic storms, with heftier balance sheets, diverse incomes, and greater financial health, Brexit could potentially encourage consolidation in the banking industry  particularly among fintech startups grappling for market share. The numbers back up the thesis that bigger is better: over the past year, the UKs largest banking firms saw their profits rise almost 75%, with Lloyds, Barclays and HSBC experiencing a sharp rise in earnings, according to The Share Centres Profit Watch UK report. The painful drag of regulatory fines and other costs relating to the financial crisis is finally starting to wear off.  The painful drag of regulatory fines and other costs relating to the financial crisis is finally starting to wear off." - The Share Centres Profit Watch UK report  Across UK listed companies, pre-tax profit grew by 4.4% in Q1 2019. While this represents the tenth successive quarter of profit growth, the positive headline figure can be attributed to the 40 largest listed UK companies which experienced average growth of 11.2%, journalist Danielle Levy, commenting on the report in Your Money, pointed out. The flipside of this has been smaller businesses struggling, with profits at companies outside of the UKs largest 40 down by an average of 17.6% in the first quarter of 2019, the fourth quarter of declining profits for small and medium-sized businesses. Levy added: Almost half of companies outside of the top 40 saw profits fall year-on-year, compared to a quarter of those in the super-league. Out of the 20 sectors that The Share Centre tracks, 11 saw profits fall  with asset managers, industrials and general retailers taking big hits.  Disruptor banks set to struggle  Stepan Lavrouk, writing in Motley Fool, put forward a similar argument: At this point, the uncertainty surrounding the process is a bigger drag on UK financials than an orderly Brexit (which has largely been priced in) would be, and at this point I think that Lloyds would respond positively to most resolutions to the impasse. Of course, there still remains the possibility of a no-deal scenario, which could have damaging long-term effects on the entirety of the financial sector, Lavrouk writes. However, I still think that Lloyds is comparatively better positioned than some of the challenger banks that have been nipping at its heels over the last few years. If anything, a no-deal scenario could exert enough pressure on the banking industry to make it consolidate, and in that case you should expect to see bigger lenders like Lloyds doing better.  Its unclear if challenger banks such as Monzo  which has an entirely domestic customer base  are particularly concerned by Brexits outcome. But for foreign banking startups trying to make headway in the UK, like German-based N26 - which says it has some 2.5 million users in 24 countries, with around 1,000 UK customers signing up a day - the picture is different. If the UK leaves the European single market, they may decide to scale back their services, or remove the UK from their international expansion hitlist altogether. 1,000 N26's number of UK customer sign ups a day  Brexit aside, there are some other issues that Lloyds will have to contend with in the short term. The PPI (payment protection insurance) mis-selling scandal continues to drag on British banking, with Lloyds announcing at the start of May that it will be putting aside an additional 100m to cover PPI compensation. The lender says it still continues to receive in the region of 13,000 complaints a week regarding the issue.