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.

BARC will pay an interim dividend of 2.00 pence per share on 17 September 2021, while the ex-dividend date will be 12 August 2021.

Investment Rationale for Valuation – SELL at GBX 175.90

• The fixed income, currencies, and commodities (FICC) trading business had demonstrated a significant drop of almost 37% during H1 FY21.
• The Company stated that the outlook would remain uncertain and largely dependant on the duration of the Covid-19 pandemic.
• The net interest income had witnessed around 8% decline during H1 FY21 as compared to H1 FY20.
• BARC had reported a cost to income ratio of 64% during H1 FY21, an increase from 57% for H1 FY20.
• From a technical standpoint, BARC is trading between the middle Bollinger band and upper Bollinger band, indicating a correction in the stock price.

Key Risks

• The net interest income could get adversely impacted due to the low interest rates.
• The economic disruption caused by the Covid-19 pandemic can worsen the expected credit losses.
• The failure of partner relationships could adversely impact the business in the near term.
  

Recent News

On 02 August 2021, BARC had announced a share buy-back programme for the maximum consideration of £500 million to commence from 02 August 2021 and end on 01 December 2021. 

H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as of 28 July 2021)

 (Source: Company result)

• The Group’s income went down by around 3% to £11.3 billion during H1 FY21 due to the currency headwinds.
• With regards to the Banks’s solvency, BARC had maintained a CET 1 ratio of 15.1% as of 30 June 2021, as compared to 14.2% as of 30 June 2020.
• The attributable profit remained around £3.81 billion during H1 FY21.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

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

Conclusion

The Company had anticipated FY21 costs to remain higher than the prior year because of the higher structural cost actions. Furthermore, BARC expects the CET1 ratio to remain more than the target range between 13% and 14%, considering the economic uncertainties and currency headwinds in 2022. Meanwhile, the Company had expected RoTE (“Return on Tangible Equity”) to remain greater than 10% during FY21. It would be advisable to book profit at current levels as BARC highlighted of an uncertain outlook amid the Covid-19 pandemic. The stock made a 52-week low and high of GBX 88.90 and GBX 217.63, respectively. 

Based on the uncertain outlook, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Barclays PLC at the closing market price of GBX 175.90 (as on 02 August 2021), while we will suggest reinvesting once we identify fresh growth catalysts for the Company. 

Melrose Industries PLC

Melrose Industries PLC is the FTSE 100 listed Company, which owns manufacturing and industrial business with a leading market position operating across several geographies.

The Company will pay a special dividend of 15.0 pence per share on 14 September 2021, while the ex-dividend date will be 31 August 2021.

On 02 September 2021, MRO will release H1 FY21 results.

Investment Rationale for Valuation – SELL at GBX 168.40

• The Company’s shares surged by 5.18% in a single day driven by Meggitt takeover deal news.
• The global semiconductor shortage had adversely impacted the Automotive and Powder Metallurgy divisions.
• MRO had posted a revenue decline and a statutory net loss during FY20.
• From a technical standpoint, MRO is hovering above the upper Bollinger band, indicating a correction in the stock price.
• Moreover, the 14-day RSI of ~62.02 is inching towards the overbought zone.

Key Risks

• The disposal of Nortek Air Management business might adversely impact the revenue and profitability of MRO.
• Any unexpected insolvency of a large customer or several small clients may lead to a significant reduction in the top-line business.
  

Recent News 

On 22 June 2021, MRO had completed the disposal of Nortek Air Management Division for approximately £2.62 billion. Moreover, the Company will distribute approximately £730 million to shareholders in the form of a special dividend. 

Trading Update (for the four months ended 30 April 2021, as of 06 May 2021)

• The top-line revenue remained around 8% ahead of the prior year’s period.
• Moreover, the aerospace division sales went down by 27% when compared with an equivalent period of 2020 and 33% in comparison to the similar period of 2019.
• The Company became cash neutral at the end of the first quarter of 2021.
• The operating margin had shown significant improvements during Q1 FY21.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The significant fraction of net proceeds obtained from the disposal of the Nortek Air Management Division would be contributed to the GKN UK defined benefit pension schemes. Moreover, the GKN businesses have generated more than £0.5 billion of the total free cash flow since the acquisition. Meanwhile, MRO had also completed the disposal of Brush for a net cash consideration of £100 million. The stock made a 52-week low and high of GBX 82.20 and GBX 189.90, respectively.

Based on the global semiconductor shortage, lack of detailed guidance, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Melrose Industries PLC at the closing market price of GBX 168.40 (as on 02 August 2021).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

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

Disclaimer

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. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

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. 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 does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does 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 intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.