Barclays Plc – Operating with a strong balance sheet

Barclays Plc (LON: BARC) is engaged in the retail and wholesale banking, credit cards, investment banking, wealth, and investment management services.

On 30 April 2021, the Company will release its Q1 FY21 results.

Rationale for Valuation – Hold at GBX 145.74

• The Company has high levels of liquidity, strong capital base and diversified profit streams provide a solid foundation for an attractive and sustainable return on capital to shareholders.
• Price/Book Value multiple of the BARC is currently lower than the Banking Services industry, which shows that shares are undervalued against the industry.
• According to the Moody’s Long-Term Debt Rating (November 2020), the Company’s debt rating was Baa2, with a stable outlook.
• From the technical standpoint, shares are trading well above the short-term support level of 100-day (approximately GBX 133.37) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The Covid-19 outbreak has impacted many of the customers’ business models and income.
• Several macroeconomic factors, including Brexit, could impact the state of economic recovery in the UK over the next two quarters and for the next year.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 18 February 2021)

(Source: Company Website)

• The Company delivered a resilient operating performance and remained profitable every quarter during 2020.
• Total income surged by 1% to £21.8 billion as compared with the previous year, due to high Market income and Banking income.
• The CET1 capital ratio for FY20 surged by 130bps year-on-year to 15.1%.
• Total assets increased to £1,350 billion against the previous year, mainly driven by an increase in derivative assets.
• Loans and advances at amortised cost surged by £4 billion year-on-year, with £5 billion of mortgage growth and lower unsecured lending balances.
• On a year-on-year basis, the tangible net asset value (TNAV) per share rose to 269 pence and deposits at amortised cost increased by £65 billion.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Conclusion

Despite a difficult macroeconomic period, the Company delivered a resilient performance. The CIB (Corporate and Investment Bank) performance in the financial year 2020 benefitted from increased issuance activity and trading volumes. The Company witnessed a strong capital position. The Company also announced a total payout equivalent to 5 pence per share, which comprises the intention to initiate a share buyback of around £700 million and the full-year dividend per share of 1 pence. Barclays stays highly liquid, well-provisioned for impairments and well capitalised, with a strong balance sheet. The Company expects an improvement in returns in 2021. The stock made a 52-week low and high of GBX 73.04 and GBX 184.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on Barclays at the current price of GBX 145.74 (as on 19 February 2021, before the market close at 8:24 AM GMT) and will recommend fresh buying at the right time.

Beazley Plc - Expects positive performance in 2021 and could return to paying dividends

Beazley PLC (LON: BEZ) is a FTSE 250 listed Specialist Insurance Company. The major operations are based in Europe, the United States and the Pacific region.

On 26 March 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Buy at GBX 333.70

• As per valuation metrics, Price/Cash Flow and Price/Book Value multiples are currently lower than the Insurance industry multiples.
• BEZ had delivered a strong performance in the current period, with double-digit premium growth across the business, mainly driven by rate rises across all divisions.
• The Company could return to paying dividends in 2021.
• The company's debt/equity ratio in the past three years was considerably below the industry median. In FY20, the debt/equity ratio was 0.36x.
• From the technical standpoint, 14-day RSI stood at around 39.10, which is supporting the upside movement.

Key Risks

• The ongoing market volatility arising from geopolitical and economic uncertainties can dampen investor sentiments.
• COVID-19 second wave concerns due to which further lockdown being imposed.

Financial Highlights (for the year-end 31 December 2020 (FY20), as on 5 February 2021)

(Source: Company Website)

• In 2020, the Company delivered a strong premium growth, with an increase of 19% YoY in premiums.
• However, the pre-tax loss was USD 50.4 million, driven by a combined ratio that deteriorated to 109%.
• Rates on renewal business on average surged by 15% YoY across the portfolio.
• In 2020, the reserve releases increased to USD 93.1 million as compared with the previous year.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Conclusion

The Company witnessed a strong performance, with an increase of 19% year-on-year in gross premiums written. It has also achieved growth in most of the division. Further, it has an unutilised banking facility of USD 225 million. Moreover, the Company continues to support customers and provide excellent claims service. Looking ahead, BEZ is expecting to deliver mid-teens growth in FY21 along with strong shareholders returns. It expects 2021 combined ratio to be low-90s. Overall, it has a decent balance sheet and is also looking to take advantage of future opportunities through LOC extension and equity raise done earlier in FY20. The stock made a 52-week low and high of GBX 287.60 and GBX 598.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” stance on Beazley at the current market price of GBX 333.70 (as on 19 February 2021, before the market close at 8:55 AM GMT), with lower double-digit upside potential based on 1.69x Price/NTM Book Value (approx.) on FY21E book value per share (approx.). 

*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.