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Barclays posts modest gains

Though questions remain of its investment bank, a focus on costs means Barclays shares continue to look cheap
August 1, 2019

If turning a profit proves hard, instead turn to your expenses. That’s the basic message contained in Barclays’ (BARC) half-year results, which promised to reduce full-year costs below guidance of £13.6bn as compensation for what the lender termed a “challenging” income environment.

IC TIP: Buy at 158p

It is unlikely that cost-cutting alone led to these figures’ warm reception. Indeed, operating expenses actually rose 1 per cent to £6.76bn in the period, while a surge in credit impairment charges and other provisions led to a 5 per cent drop in net operating income. Neither should the rise in reported profits be mistaken for anything other than lower litigation and conduct charges. Unlike rival lender Lloyds, there was no sudden bump in PPI claims redress at the half year, though there remains “uncertainty associated with future claims levels” ahead of the Financial Conduct Authority’s 29 August deadline.

A more likely candidate for investor cheer was the performance of the hotly-contested investment bank, where income from bond and equities trading, as well as transactional and lending activities rose 7 per cent quarter on quarter. However, the division’s high cost of capital continues to weigh on the group-level return on tangible equity, which nudged up in the quarter to the middle of guidance at 9.4 per cent, but down 220 basis points year on year.

Consensus forecasts are for earnings of 22.1p a share this year, and 23.9p in 2020.

BARCLAYS (BARC)   
ORD PRICE:158pMARKET VALUE:£ 27.2bn
TOUCH:157.9-158p12-MONTH HIGH:198pLOW: 145p
DIVIDEND YIELD:4.4%PE RATIO:9
NET ASSET VALUE:392pLEVERAGE:20.1
Half-year to 30 JunTotal operating income (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201810.91.663.32.5
201910.83.0112.13.0
% change-1+82+267+20
Ex-div:08 Aug   
Payment:23 Sep