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Are Barclays shares a buy now?

Royston Roche
·3-min read
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Businessman standing in front of screen

2020 has not been a good year for the stock market. It has been even worse for a large bank like Barclays (LSE: BARC), as its shares fell 14% in the past year. The returns are worse than the FTSE 100 index, which has dropped 11% in the same period.

It has been indeed been a roller-coaster ride since the start of the pandemic in March. There is also positive news that the investors who have bought the stock at the beginning of September have a return of approximately 40%.

Macro environment

The new variant of the coronavirus has come as a shock to retailers as the government was forced to announce a national lockdown on January 4, 2021. Investors will be keenly watching as to when the government will relax the lockdown. Moderna became the third Covid-19 vaccine to be approved in the UK as the new cases rise rapidly.

Brexit will likely be another blow to the economy in the near term, and we are uncertain of the confusion that might prevail in the initial months.

The Bank of England in its December meeting unanimously decided to keep the interest rates on hold at 0.1% against a backdrop of rising coronavirus infections and Brexit disruption.

Fundamentals

Barclays is diversified with the Wholesale division (57% of Q3 2020 YTD income) and net interest income (37% of Q3 2020 YTD income). This is positive for the bank since it relies less on interest income during this low-interest period.

Year to date, total income increased by 3% year on year to £16.8bn. This was primarily helped by a 24% increase in Corporate and Investment Bank (CIB) income. The bank has been slowly increasing the market share in FICC and equities since 2017. Barclays’ International income grew by 11% y-o-y to £12.4bn and its UK income fell 12% y-o-y to £4.7bn. The bank’s profits fell 27% y-o-y to £1.3bn.

The bank is well capitalised with a CET1 ratio of 14.6% when compared to 13.8% at the end of December 2019.

While management expects certain headwinds to income in Barclays UK to persist in 2021, I believe the CIB franchise is well positioned for the future after a strong performance this year.

The bank has already started cost-cutting measures as it looks to reduce its real estate expenses in the U.K., U.S. and India as more operations are moving to remote working.

Barclays shares might restart dishing out dividends this year as the Prudential Regulatory Authority has given the green signal for the banks to make dividend payment which was stopped to increase the capital level and protect the banks from potential loan losses during the pandemic.

The macro environment is challenging, and the uncertainty makes me want to avoid Barclays shares at the moment. The bank is currently trading at a P/B ratio of 0.41 when compared to the historical five-year average of 0.46. In my opinion, the discount is not very large taking into consideration the macro risks and the expected growth.

The post Are Barclays shares a buy now? appeared first on The Motley Fool UK.

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021