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In the course of the international monetary disaster (GFC) of 2007-09, Barclays (LSE: BARC) got here near collapse. Because the financial institution struggled to shore up its steadiness sheet, its shares plunged as little as 45p.
Refusing to take a authorities/taxpayer-funded bailout, the Blue Eagle financial institution made some extraordinarily powerful selections, the repercussions of which nonetheless have an effect on the group in the present day.
With the intention to survive the GFC, Barclays offered off a number of worthwhile companies, together with its ‘crown jewel’: vastly profitable funding supervisor Barclays World Traders (BGI). Right now, the group is generally constructed on its ‘boring’ UK clearing financial institution, plus its ‘thrilling’ funding financial institution.
Barclays inventory slides
One of many agency’s largest issues is that its largely US-based funding financial institution requires an enormous quantity of property and capital, but produces unstable annual returns. For some shareholders, that is the albatross across the group’s neck, holding again the entire.
In the meantime, the Barclays share worth has gone nowhere for years. As I write, it stands at 142p, valuing the enterprise at a modest £21.5bn. This inventory is down 1.1% over six months, 17.7% over one yr, and 11% over 5 years.
Even contemplating the weak point of the broader FTSE 100 index, these are garbage returns. No surprise the shares are nicely beneath their 52-week excessive of 198.86p, hit on 8 March final yr.
However what about dividends?
For the document, my spouse and I purchased Barclays shares for our household portfolio in July 2022, paying 154.5p a share. Up to now, we’re nursing a paper lack of 8.1% on our buy worth.
Then once more, all returns talked about above exclude money dividends — the primary motive why we invested in Barclays in 2022. Up to now, now we have additionally acquired 9.95p per share in money, but this nonetheless leaves us with a small loss.
This share appears to be like low-cost
Proper now, Barclays appears to be like a cut-price, bargain-basement inventory to me. It trades on a lowly a number of of 4.2 instances earnings, delivering a bumper earnings yield of 23.6%.
Because of this the market-beating dividend yield of 5.4% a yr is roofed a stable 4.4 instances by earnings. To me, this payout appears to be like secure as homes — lots of which Barclays funds by its UK mortgage arm.
Nonetheless, these fundamentals are primarily based on backward-looking figures, with 2024 shaping as much as be a tricky yr. I totally count on banks’ dangerous money owed and mortgage losses to rise this yr, whereas credit score progress could possibly be minimal and even unfavourable. Thus, Barclays’ revenues, earnings, and money circulate may endure.
What may change?
In its third-quarter outcomes, Barclays revealed a tangible internet asset worth (TNAV) of 316p a share. Thus, its shares at present commerce on a reduction of over 55% to this stage. How can this inventory be so undervalued?
For me, the reply is about belief and narratives. Administration have made some howlers lately, costing the financial institution billions of kilos in fines. Likewise, some of us simply don’t like that funding financial institution.
That stated, CEO CS Venkatakrishnan is about to unveil the result of his wide-ranging strategic overview on 20 February. If buyers like what they see, then this might enhance the share worth. Alas, earlier re-evaluations have clearly failed.
Lastly, I await this occasion with optimism, so we will dangle onto our stake for now. However I hope for some welcome reduction for Barclays’ long-suffering shareholders!
