Headquartered in London, Barclays PLC (BCS) is the sixth-largest investment bank globally and the largest bank not domiciled in the U.S. It operates in two divisions: Barclays U.K.; and Barclays International.
The company achieved record profit in its fiscal year 2021, driven by tremendous organic growth, a diversified business model, and increased technological capabilities.
However, the price of shares of BCS has been declining over the past few months due to broader market uncertainty and increased geopolitical tensions as Western countries impose economic and financial sanctions on Russia in response to Russia’s invasion of Ukraine. The stock has declined 20% in price year-to-date and 27.7% over the past month to close yesterday’s trading session at $8.28.
Here is what could shape BCS’ performance in the near term:
Record Earnings
BCS’ net operating income increased 33% year-over-year to £22.59 billion ($29.62 billion) in its fiscal year 2021 (ended December 31, 2021). Its total income improved marginally from the same period last year to £21.94 billion ($28.76 billion). Its profit before tax amounted to a record £8.41 billion ($11.03 billion), up 174.5% from its year-ago value. And its attributable profit rose 317.8% year-over-year to £6.38 billion ($8.36 billion).
Its Return on tangible equity (ROTE) rose 1020 basis points from the same period last year to 13.4%. And the company delivered £2.50 billion of excess capital to shareholders in 2021 through a £0.06 ($0.08) dividend per share and £1.50 billion ($1.97 billion) through share repurchases.
Accelerated Buybacks
BCS announced a £1 billion ($1.31 billion) share repurchase program and a full year dividend payout of £0.04 following its fiscal 2021 financial report release. Quilter Cheviot equity analyst Will Howlett said, “The bank is announcing a further £1bn share buyback, which we see as particularly attractive with the shares trading at a significant discount to tangible book value. Barclays has reiterated its target of delivering a return on tangible equity of greater than 10%, and after delivering 13.4% in the financial year 2021. Albeit flattered by net provision writebacks, the shares offer significant potential for re-rating, in our view.”
Discounted Valuation
In terms of forward non-GAAP P/E, BCS is currently trading at 5.50x, which is 50.5% lower than the 11.11x industry average. Its 0.01 trailing-12-month PEG multiple is 93.4% lower than the 1.19 industry average.
In addition, BCS’ 1.12 forward Price/Sales ratio compares with the 3.15 industry average. Also, the stock’s trailing-12-month Price/Cash Flow and Price/Book multiples of 0.50 and 0.36, respectively, are significantly lower than the 8.34 and 1.18 respective industry averages.
Favorable POWR Ratings
BCS has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value and Stability. The stock’s Value grade is in sync with its lower-than-industry valuation metrics. In addition, BCS’ relatively low 12.33 maximum drawdown justifies its Stability grade.
Among the 96 stocks in the B-rated Foreign Banks industry, BCS is ranked #8.
Beyond what I have stated above, view BCS ratings for Growth, Sentiment, Momentum, and Quality here.
Bottom Line
Barclays Group CEO C.S. Venkatakrishnan expects the bank to deliver consistent growth in 2022, driven by robust management of its balance sheet, costs, and controls. The bank is likely to benefit from impending interest rates hikes in the coming months. Also, BCS has prioritized the delivery of next-generation, digitized consumer financial services, given changing consumer trends. Thus, we think BCS could be an ideal investment bet now.
How Does Barclays (BCS) Stack Up Against its Peers?
While BCS has a B rating in our proprietary rating system, one might want to consider looking at its industry peer, Banco Macro S.A. ADR (BMA), which has an A (Strong Buy) rating.
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BCS shares were trading at $8.62 per share on Wednesday morning, up $0.34 (+4.11%). Year-to-date, BCS has declined -14.84%, versus a -10.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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