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Barclays shares look like a real bargain to me

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Barclays (LSE: BARC) shares just had a rough week. On Valentine’s Day, the shares were all loved up, peaking just below 189p. But then mixed results in the bank’s full-year results sent the shares spiralling sharply southwards on Wednesday.

Share price battered by results

After nearing 189p on Tuesday, its shares closed on Friday at 173.5p, valuing the bank at £27.6bn. The damage to the stock came on Wednesday, as Barclays’ 2022 results turned out to be something of a mixed bag.

Barclays unveiled a 14% fall in pre-tax profits for last year, but most of this decline came from known events. For example, the Blue Eagle bank has set aside up to £1.9bn to deal with the fallout from inadvertently over-issuing securities in the US for a few years.

Even so, the bank’s performance was patchy in parts. As expected, its trading and investment-banking arms performed poorly. This comes as no surprise, given financial markets tanked in 2022. Yet its core UK domestic-banking business is in good health, boosted by rising interest-rate margins.

Two bits of good news for shareholders

On the income front, things are looking up for Barclays shareholders (which include my wife). The bank lifted its full-year dividend to 7.25p. This cash return is more than a fifth (+20.8%) higher than the 6p paid out for 2021 — and way ahead of 2020’s 1p a share.

Also, the bank pledged to buy back £500m of its shares. This will reduce its share base by a little over 1.8%. Over time, this should boost the group’s earnings per share, thus supporting the stock over the long term.

Barclays still looks a big bargain

For me, Wednesday’s price action seems too negative. Looking at Barclays shares today, I spot a beautiful bargain for patient, long-term investors like me.

The first point I’d make is that Barclays stock looks incredibly cheap versus the wider market. The shares trade on a lowly price-to-earnings ratio of 5.8, for a bumper earnings yield of 17.2%. This ranks the stock among the cheapest in the FTSE 100 index.

Also, the shares offer a dividend yield of 4.3% a year — about 0.6 percentage points above the Footsie’s 3.7%. Yet this cash yield is covered a whopping four times by trailing earnings. To me, this indicates that it is among the safest in the London market.

But the outlook isn’t rosy for banks

While I see deep value in Barclays shares, the immediate future looks gloomy for British banks. Soaring inflation, sky-high energy bills and rising interest rates have crushed consumer confidence. With the UK economy poised to go into recession in 2023, bad debts and loan losses are expected to increase.

But with Barclays stock looking so cheap on fundamentals, I see most of this bad news already priced into the shares. And that’s why I’d happily buy more shares at current levels — if I had the spare cash, that is!

The post Barclays shares look like a real bargain to me appeared first on The Motley Fool UK.

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Cliff D’Arcy has an economic interest in Barclays shares. The Motley Fool UK has recommended Barclays Plc. 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 2023