Barclays Plc - Robust Financial Position, Underpinned by the Diversified Business Model

Barclays Plc (LON: BARC) is a FTSE 100 listed Financial Services Company, which is engaged in the retail and wholesale banking, credit cards, investment banking, wealth, and investment management services.

On 29^th July 2020, the Company will release the half-year 2020 results.

Q1 FY2020 Update

(Source: Presentation, Company Website)

On 29th April 2020, Barclays released an update for the trading performance for the first quarter of the financial year 2020 ending 31st March 2020. The Group has shown strong operating performance, and the return on tangible equity (RoTE) stood at 5.1% for the period, despite the impacts of Covid-19 outbreak.

Led by strong performance in Corporate and Investment Bank, the total income increased by 20% in Q1 FY20 (against Q1 FY19). CET1 ratio for Q1 FY20 decreased to 13.1% (December 2019: 13.8%), primarily reflecting RWA (Risk-Weighted Assets) growth partially offset by profits and cancellation of dividend.

The TNAV (tangible net asset value) per share stood at 284 pence in the first quarter of the financial year 2020 (31^st December 2019: 262 pence).

Share Price Performance

1-Year Chart as at June-30-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Barclays Plc’s shares were trading at GBX 113.72 on 30th June 2020 (before the market close at 8:50 AM GMT+1), which was down by 0.68% against the last day closing price. Stock 52 week High and Low were GBX 192.99 and GBX 73.04, respectively.

From the technical standpoint, shares were trading well above the short-term support level of 60-day simple moving average prices, which reflects an upward trend in the stock.

Valuation Methodology


Key Risks
2020 seems a challenging year for the Company due to the low-interest-rate environment and RoTE greater than 10% appears to be a tough target to meet. CC&P (Consumer, Cards and Payments) credit impairment charges surged to GBP 885mn, driven by forecast deterioration in macroeconomic variables in the COVID-19 scenario.

Conclusion
Despite the existence of short-term headwinds from spending on initiatives related to the COVID-19 pandemic, the scenario remained positive for Barclays. The Group’s performance in 2020 is expected to show the challenging environment, including the impact of Covid-19.

The Consumer, Cards & Payments (CC&P) and Barclays UK (BUK) are expected to show headwinds for remaining FY2020, due to macroeconomic downturn caused by lower interest rate and impact of the COVID-19 pandemic. In such a scenario, the Group has taken several cost initiatives to maintain a decent cost-income ratio.

The client flow for Markets business continues to be at healthy levels for the period. The diversified customer base of customers plays a critical role in the growth of the bank. The bank is planning to increase the customer reach and enhance the market position. The Bank is also planning to diversify the business with less capital-intensive structure.

Overall, the business is well diversified and relatively less capital intensive to sustain the market position. It is also planning to expand the customer reach and market share.

Based on the decent prospects, and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current market price of GBX 113.72 (as on 30th June 2020, before the market close at 8:50 AM GMT+1) with single-digit upside potential based on 0.39x NTM Price/Book Value (approx.) on FY20E Book Value Per Share (approx.).

Capital & Regional Plc - Demonstrated Resilient Performance, Taking Several Actions to Reduce Costs

FTSE All-Share listed Capital & Regional Plc (LON: CAL) is a United Kingdom-headquartered Real Estate Investment Trust. The Group has a portfolio of in-town community shopping centres.

Recent News
On 17^th June 2020, the Group announced the issuance of 7.9mn equity shares of GBP 0.10 per share in the Company (the scrip dividend shares). This is to be issued pursuant to the election offered to stockholders to receive the final dividend for FY19.This signifies around 7.6% of the existing issued share capital.

COVID-19 Update (as on 31^st March 2020)
In this update, the Company affirmed that around 23% of occupiers by contracted rent remained operational. Moreover, the Company only received 50% of the collection for the second quarter as against the average of at least 80% by the equivalent time. Regarding the liquidity (as at 25^th March 2020), the Company had an undrawn revolving credit facility of GBP 15mn available until January 2022 and total cash on the balance sheet of more than GBP 90mn.  To further improve cash flows, the Group has suspended all non-committed capital expenditure projects, which could preserve over GBP 10mn over the next twelve months.

Share Price Performance

1-Year Chart as at June-30-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Capital & Regional Plc’s shares were trading at GBX 91.32 on 30th June 2020 (before the market close at 8:55 AM GMT+1), which was down by 1.49% against the last day closing price. Stock 52 week High and Low were GBX 302.50 and GBX 66.21, respectively.

From the technical standpoint, 90-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology


Potential Risks
Long-term debt contribution was higher in the Group's total capital, and LT Debt/Equity ratio of the Group stood at 1.29x against the industry median of 0.59x, which poses some risks to the balance sheet of the Company.

Conclusion
In FY19, the Company demonstrated resilient performance. Growthpoint transaction has a strong track record in supporting existing real estate platforms globally.

In this challenging and unprecedented time, the Company is watchful on delivering for all the stakeholders. At the same time, the impact of COVID-19 is likely to be significant, and the retail environment stays volatile. The Group has a strong leasing performance against a tough operating backdrop.

Overall, the Group has a strong track record in supporting existing real estate platforms globally, with a significantly improved balance sheet security. Furthermore, CAL’s prospect looks good, and it could be an attractive opportunity to invest in the long term.

Based on the decent growth prospects and the valuation as done using the above method, we have given a “Speculative Buy” recommendation at the current market price of GBX 91.32 (as on 30th June 2020, before the market close at 8:55 AM GMT+1)  with lower double-digit upside potential based on 7.10x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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