Barclays Plc

Barclays Plc (BARC) is a global financial services provider offering personal and business banking, wholesale and commercial banking, and private and investment banking solutions to individuals, SMEs, corporates, and high-net-worth clients. It offers deposits and accounts, cards, loans, and investment solutions. The bank also offers services such as foreign exchange, transactional lending, mobile banking, premier banking, international banking, and online banking.

Recent News
On 14th July 2019, Sunday, Barclays Plc announced the cutting of nearly 20 per cent wealth management business jobs in Dubai. The bank had offered to transfer a few employees to its Geneva or London offices. The bank is currently having an employee base of 200 professionals working in its DIFC (Dubai International Financial Centre). As per the annual statement for FY2018, the company’s AUM (Asset Under management) for wealth management business fell due to challenging market conditions.

Financial Highlights – Q1 Financial Year 2019 (£, million)

(Source: Quarterly Report, Company Website)
 
For the first quarter of the financial year 2019,Barclays’ total income stood at £5,252 million as against £5,358 million in Q1 FY18.The company’s Net Interest Income stood at £2,258 million for Q1 FY2019 against £2,188 million in Q1 FY2018, up by 3.19 per cent in Q1 FY19. Group’s Pre-tax profit stood at £1,483 million in Q1 FY19 versus a pre-tax loss of £236 million in Q1 FY2018. The company’s attributable profit for Q1 FY2019 stood at £1,038 million as compared to a loss of £764 million in Q1 FY2018. The company’sBasic Earnings per share stood at 6.1 pence in Q1 FY2019 as compared to a loss per share of 4.2 pence in Q1 FY2018.

Share Price Performance

Daily Chart as at July-15-19, after the market closed (Source: Thomson Reuters)

On 15th July 2019, Barclays Plc shares closed at GBX 156.78, down by 0.27 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 197.50/GBX 144.99.

Valuation Methodology


Conclusion
Despite challenging income environment quarter for the group in the first quarter of 2019, the group’s performance remained in line with the management expectation. The lender is targeting to maintain a Return on Tangible Equity (ROTE) above 9 per cent for the FY19 and above 10 per cent for FY20. The group’s International business recorded a decent quarter for the consumer cards and payment business, supported by improved distribution in the United States.  Also, the bank has made significant investments for technology development across the group and aiming to digitise its consumer business in the UK, US and Germany. The group operations are impacted by the uncertainty created due to ongoing Brexit, which resulted in a business borrowing decisions delays and would be difficult to achieve rise in income level in the short-term period.

Based on the decent fundamentals and future outlook and valuation done using the above methodology, we have given a "Buy" recommendation at the closing price of GBX 156.78 (as on July 15, 2019), with single-digit upside potential, based on the 0.52x NTM Price/Book value (approx.) on the FY19E book value per share (approx.).
 

Royal Bank of Scotland Plc

Royal Bank of Scotland (RBS) provides financial products and services to the customers in the UK and Abroad markets. RBS holds brands such as Coutts, NatWest, Holt’s Child & Co., Lombard, etc. under its name and few are even older than the Royal Bank itself. The company's operations are differentiated in four operating segments: Personal & Business Banking (PBB), Commercial & Private Banking (CPB), RBS International (RBSI), and NatWest Markets. Harris Associates LP, Norges Bank Investment Management and Artisan Partners LP are the major shareholders in the bank. (Source: Thomson Reuters).

Interim Statement – Q1 Financial Year 2019 (£ million)

(Source: Quarterly Report, Company Website)

For the first quarter ending 31^st March 2019, reported operating profit before tax surged by £441 million to £1,013 million against last quarter data, however, on a YoY basis, operating profit before tax declined to £1,013 million against £1,213 million recorded last year, primarily on account of £265 million lower Income and partially balanced by £73 million lower operating expenses. Attributed profit to the ordinary shareholders stood at £707 million from £808 million in Q1 FY18. Net Interest Margin for the period decreased to 1.89 per cent in Q1 FY2019 from 2.04 per cent in Q1 FY2018. The cost-to-income ratio stood at 63.4 per cent in Q1 FY2019 against 60.5 per cent in Q1 FY18. Basic earnings per share declined to 5.9 pence in Q1 FY2019 from 6.8 pence recorded in Q1 FY18. During the first quarter of FY19, return on tangible equity stood at 8.3 per cent as compared with 9.4 per cent in the first quarter of 2018.

Share Price Performance

Daily Chart as at July-15-19, after the market closed (Source: Thomson Reuters)

On 15th July 2019, Royal Bank of Scotland Plc shares closed at GBX 229.30, down by 0.30 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 266.44/GBX 194.44.
 
 Valuation Methodology

Conclusion
During the first quarter of 2019, the company’s financial performance had declined. But despite the declined performance, the company had stable income sources in the Q1 FY2019 excluding Central items and NWM (NatWest Markets). The company reduced its cost to £45 million for the quarter and remained on target to reduce cost by £300 million for the FY2019. The companyincreased its digital customers for the quarter, and digital sales surged by 17 per cent for the period. In the Q1 FY19 period, Tier-1 Capital ratio stood at 16.20 per cent, giving an increase of 30 basis (underlying basis) points for the quarter.
Based on the above rationale and valuation done using the above methodology, we have given a “Buy” recommendation on the stock at the closing price of GBX 229.30 (as on July 15, 2019) with single-digit upside potential, based on the 0.75x NTM Price/Book Value (approx.) on the FY19E book value per share (approx.).
 
*All forecasted figures and peer have been taken from Thomson Reuters.

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