Don’t get too excited about Barclays’ (BARC) hefty jump in reported half-year profit. Adjust for a raft of exceptionals, significantly related to restructuring, and pre-tax profit fell 7 per cent year-on-year to £3.35bn. But that still beat analysts’ consensus estimates, helping the shares rise 4 per cent on the day the figures appeared.
The strong pound and a £900m boost to the PPI mis-selling provision hurt earnings. A 46 per cent fall in the investment bank's pre-tax profit, to £1.1bn, didn't help either. That, however, isn't surprising given management's plan to radically scale back the investment bank: some 7,000 jobs will go there by 2016. Tough conditions for fixed income, currencies and commodities-related business also took a toll, although improved fee income from advisory and equity underwriting still helped the division beat expectations.
Meanwhile, the New York Attorney’s lawsuit - filed in June and relating to the bank’s "dark pool" trading operations - doesn’t seem to be doing much damage at the investment bank. Dark trading allows for blocks of shares to be traded while keeping prices private, and it’s alleged that Barclays favoured higher-frequency trading clients. But finance director Tushar Morzarai reckons dark pool revenues are up 42 per cent since the allegations appeared, as confidence has stabilised.
Barclays is making progress towards its targeted cost base of under £14.5bn by 2016, too, and operating costs fell 9 per cent in the period to £8.9bn. Improving credit quality is another factor that’s supporting earnings: the impairment charge dropped a third year on year to £1.1bn.
All this allowed a net £0.5bn of capital to be generated from earnings. Add that to a £31bn fall in assets, weighted for risk - £22bn from the non-core bank - and Barclays' Basel III-basis common equity tier one ratio (comparing its highest quality capital to risk weighted assets) improved by nearly a percentage point to a reasonably healthy 9.9 per cent.
Pending upgrades, broker Numis Securities expects full-year adjusted EPS to recover to 15.7p from just 3.8p in 2013, with net tangible assets (NTA) of 291p a share.
BARCLAYS (BARC) | ||||
---|---|---|---|---|
ORD PRICE: | 229.4p | MARKET VALUE: | £37.6bn | |
TOUCH: | 229.3-229.4p | 12-MONTH HIGH: | 298p | LOW: 202p |
DIVIDEND YIELD: | 2.8% | PE RATIO: | 38 | |
NET ASSET VALUE: | 354p |
Half-year to 30 Jun | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|
2013 | 1.68 | 5 | 2 |
2014 | 2.50 | 7 | 2 |
% change | +49 | +40 | - |
Ex-div: 6 Aug Payment: 19 Sep |