With interest rates on the rise, the Lloyds (LSE:LLOY) share price is starting to look attractive. After all, this shift in monetary policy creates a far more profitable lending environment for the bank. And when combining this with a seemingly cheap P/E ratio of six, the UK share looks like it’s primed for good times ahead. But, personally, I think there’s a far better opportunity within the finance space that could far outperform Lloyds for me. Let’s explore.
Lloyds share price potential
Despite this bank’s seemingly favourable operating environment, its recent stock performance is left wanting. In fact, the share price is down around 6% over the last 12 months. And since the start of 2022, its decline is closer to 10%. Why is this?
Rising interest rates are undoubtedly good news for lending institutions. But high inflation is not. With fears of a recession slowing down economic growth, demand for business and personal loans is expected to suffer. This means the group may not actually be able to capitalise on the opportunity created by the Bank of England.
Despite this, I still see lots of long-term profit potential. Management plans for the firm to become the UK’s largest private landlord within the next decade, creating yet another stream of theoretically reliable income for the business. This strategy does expose the bottom line to the risk of falling property prices and subsequent rent adjustments. However, with the demand for housing still not satisfied, this move seems prudent, in my opinion.
I don’t think management will have much trouble maintaining its tasty 4.4% dividend yield, even if the Lloyds share price starts to climb. That’s certainly an interesting proposition for my income portfolio. But in terms of growth, its prospects seem mild at best.
Another UK share with better growth potential
While traditional corporate banking will probably always have its place, the rise of fintech is making waves. One example is Alpha FX (LSE:AFX).
The company is best known for its currency risk management services. However, in 2019, it launched a new alternative banking solution that enables businesses to manage payments and accounts from a single platform. The service also includes access to a bespoke payment network designed to handle enterprise-scale international transactions. It’s not only cheaper than the archaic wire transfer method but also near-instant.
Needless to say, that’s quite a technological advantage to have. So, it’s hardly surprising that this division already represents a quarter of the revenue stream within just two years, growing at a triple-digit rate. What’s more, unlike the Lloyds share price, this UK stock is up just under 40% in the last 12 months.
Obviously, Alpha FX isn’t a guaranteed success. There are other fintech companies out there offering similar solutions. And currency hedging, a risky and complicated process, is still the primary source of income. But given the explosive growth potential, I believe Alpha FX is a far better buy for my portfolio today than Lloyds.