Barclays PLC

Barclays PLC (LON: BARC) is an FTSE 100 Index-listed British universal bank. It provides consumer banking and payments operations around the world, along with global corporate and investment banking services. It is the sixth-largest global investment bank.

Investment Rationale – BUY at GBX 149.06

• Medium-Term Guidance Remained Intact: Barclays continued to target a Return on Tangible Equity of greater than 10%, a cost-income ratio of less than 60% and a CET1 ratio ranging from 13% to 14% over the medium term.
• Growth Catalysts: Barclays has reported increased net operating income and resilient profitability during Q1 FY22. It is focusing on diversified income streams, delivering digitized consumer financial services, and producing sustainable growth in the CIB division.
• Attractive Capital Returns: The Company capital distribution policy incorporates a progressive ordinary dividend, supported by share buybacks.
• Technical Indicator: From a technical standpoint, the stock price is still close to the oversold territory.

Risk Assessments

• Weak Global Growth Forecast: The World Bank had reduced its global growth forecast for 2022 from 4.1% to 3.2%.
• Strategic Agility: The top-line business would be adversely affected in case the strategy fails to deliver a sustainable business model with differentiated service offerings.

Recent Update:

Debt Sale: On 28 March 2022, BARC unveiled that it would delay a planned 1-billion-pound share buyback programme as it is facing scrutiny for overselling securities and surpassing a USD 20.8 billion limit agreed with United States regulators by USD 15.2 billion. It could also have an impact on future capital distribution to shareholders.

Q1 FY22 Results (for the quarter ended 31 March 2022, as of 28 April 2022)

   (Source: Company Filings)

• Increased Income: During Q1 FY22, Group income jumped 10% YoY as Corporate and Investment Bank (CIB) remained robust, while Consumer and Payments businesses recovered well.
• Solid Capital: CET1 ratio stood at 13.8% (December 2021: 15.1%), while tangible net asset value (TNAV) per share of 294 pence (December 2021: 291 pence).

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: Virgin Money UK PLC, OSB Group PLC, and Secure Trust Bank PLC.

*All selected peers are LSE-listed Companies from the Financials sector.  

Conclusion

BARC aims to maintain an appropriate balance between delivering attractive total cash returns to shareholders, making business investments, and achieving a strong capital position.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on the strong balance sheet, consistent dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Barclays PLC at the current market price of GBX 149.06 (as of 3 May 2022, at 12:50 PM GMT+1), with lower double-digit upside potential based on 6.08x Price/NTM Earnings (approx.) on FY22E Earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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