To the start of UK banking sector results with the comments from Barclays (BARC). Yes, I have been an owner for a while and my musings here in October look inspired as we have seen a pleasant 40% share price rise over the last four months. Timing matters. Of course there are plenty of issues out there, after all a bank in a period of economic challenges always has plenty of issues...
Inevitably there was a decline in profit before tax from more than £6 billion in 2019 to around half of this at £3.2 billion in 2020. Why the decline? It was primarily driven by material increased impairment charges due to the deterioration in economic outlook driven by the COVID-19 pandemic. No surprises there. Barclays may say that ‘2021 impairment charges are expected to be materially lower’, but there are still a few questions out there. Still the CEO did observe that he sees many individuals paying down their credit card bills and saving more money in their bank account, ready to spend when economic shutdowns start to reverse.
The real excitement for Barclays is in its investment banking business where it noted that there was 'more consistency in investment banking results' than many think. Investment banking is a different angle for Barclays than the other big UK FTSE 100 banks and it is fair to say it has performed well both here and in the US. However, the backdrop of rising markets and equity/bond enthusiasm is a good chunk of the reasons why, especially as a few other companies decided back in 2017-18 to wind down their efforts. No doubt this is something to do with the backdrop of Barclays CEO Jes Staley and his American nationality. And of course deep value investors can find angles from a company that still tracks a 10%+ return on tangible equity (RoTE), whilst only obtaining 3.2% last year thanks to COVID-19 and its mainstream banking/lending business.
Reflecting its hopes going forward Barclays announced a £700 million share buyback plan and - wait for it - the return of a dividend. Now this is only 1p a share, so this particular yield is less than a single percent...but at least it is paying something. The combined cost is about five pence a share, equivalent to a 3.3% effective yield. Not amazing but investors at least can see a restart of returning cash to owners. In short Barclays is still cheap if the UK economy and the global market continue to improve in 2021. This is certainly not for everyone but my conclusion is to hold onto my position and not book the profits yet, as I believe the next year will see a closer to 200p share price. And I get that sub 1% cash dividend too!
Filed under: Barclays, Neil Woodford, Pensana, Dave Sefton, TomWinnifrith.com, Barrick Gold
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