The Barclays (LSE: BARC) The share price has risen rapidly over the past year, gaining 59.88%. I can’t say I’m surprised.
Last year I decided to take the big FTSE100 Banks were faced with a revaluation and bought shares of Lloyds Banking GroupLloyds has also performed well, gaining 41.64% in 12 months. However, not as well as Barclays.
While Lloyds focused on UK retail and small business business after the financial crisis, Barclays held on to its investment banking arm. That makes the bank more of a freewheeling go-getter than a more down-to-earth Lloyds. It also means there’s room for both in my portfolio, as the risks and rewards balance out nicely. But did I leave it too late to buy Barclays?
FTSE 100 banks fly
Today’s price-to-earnings (P/E) ratio of 8.13 suggests the shares still offer good value for money, well below the FTSE 100 average of 15.3. I’m surprised the stock is so cheap, but the P/E ratio fell to 4 or 5 last year. That looked crazy then and it looks even crazier now.
Barclays’ price-to-book ratio is just 0.5, half the 1 that is usually considered fair value. This stock is still cheap.
For the full year 2023, the company reported pre-tax profits of £6.55 billion. While that’s a lot of money, it was down from the £7.01 billion it made in the previous year.
The company’s return on equity (RoTE) also fell from 10.4% to 9% in 2023, while earnings per share (EPS) fell from 30.8 pence to 27.7 pence.
The downward trend continued in the first half of 2024. Profit before tax fell from £4.56 billion to £4.22 billion, while return on corporate earnings (RoTE) fell from 13.2% to 11.1%. Earnings per share also fell, from 19.9p to 18.6p. In previous years, Barclays would have been punished for such declines, but today sentiment is much more positive.
It helped that Barclays raised its forecast for the group’s net interest income for the full year, which was supported by the prolonged high interest rates. Higher interest rates increase net interest margins, i.e. the difference between what banks pay savers and what they charge borrowers.
Dividend income and growth
Barclays further delighted investors by completing a £1 billion share buyback and announcing a further £750 million. The company also increased its half-year dividend from 2.7 pence to 2.9 pence per share.
While Barclays shares have soared, the dividend yield has fallen to a modest 3.5%, below the FTSE 100 average of 3.83%. However, the yield is expected to rise steadily, reaching 3.72% this year and 4.03% in 2025.
One of the main concerns is that net interest margins will fall if central banks start cutting interest rates even further. This process has already begun and could accelerate if the US Federal Reserve cuts interest rates sharply to avert a recession.
Barclays is also under constant pressure from activists who accuse the company of everything from financing fossil fuels to unfair profits through higher interest rates. A special tax is still not a major threat. A global economic slowdown is a bigger one.
I would like to keep Barclays shares, but I am always cautious when buying a stock after such a sharp rise in price. Usually by the time I get in, the good times are over, so I wait for a market fluctuation and try to buy on a dip.
The post “Barclays share price is up 60% but still looks dirt cheap at a P/E of 8.3!” appeared first on The Motley Fool UK.
Further reading
Harvey Jones holds positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. The views expressed on companies mentioned in this article are those of the author and may therefore 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 2024
