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Barclays‘ (LSE: BARC) share value dipped following the publication of its 2024 outcomes on Thursday (13 February), however the numbers look pretty good to me.
With the inventory nonetheless buying and selling nicely beneath its e-book worth, ought to traders contemplate shopping for the dip?
Strong outcomes present assist
Barclays’ pre-tax revenue rose by 24% to £8,108m final yr, barely above dealer forecasts. Shareholders get a 5% dividend improve and have additionally benefited from £1.8bn of share buybacks over the past yr.
I’m not at all times a fan of buybacks, however Barclays has been shopping for again its shares beneath their e-book worth. For a wholesome enterprise, this may be good option to increase the share value. Having fewer shares in circulation will increase an organization’s e-book worth per share, which may drive share value features.
Barclays’ tangible e-book worth per share rose by 8% to 357p final yr. That’s greater than 20% above the share value, on the time of writing. Chief government CS Venkatakrishnan is planning extra buybacks for 2025 too.
What to fret about
One space that’s inflicting some stress for UK lenders in the mean time is motor finance – used automotive loans. Barclays stopped working on this space in 2019, however the financial institution admits that “historic operations earlier than this time” may very well be affected.
The UK regulator’s investigation into this sector is ongoing and nobody is aware of what the end result will probably be. However rival Lloyds (a a lot larger motor sector lender) has already put aside £450m.
One other threat is the long-term volatility of income from the group’s funding financial institution. This division’s performing nicely in the mean time, as deal exercise recovers. Income rose by 18% to £3.8bn final yr –almost half the group whole. However funding banking tends to undergo weak patches periodically.
My verdict
I’m inspired by what I’m seeing at Barclays. Most significantly, I’m pleased to see the financial institution’s all-important profitability metrics are enhancing.
Return on tangible fairness (RoTE) rose to 10.5%, from 9% in 2023. Administration’s focusing on a RoTE determine of 11% for 2025 and “better than 12%” for 2026.
That is necessary as a result of it’s most likely one of the best measure of how a lot surplus money a financial institution’s producing every year. All else being equal, increased returns on fairness imply a financial institution will have the ability to make investments extra in development or fund bigger shareholder returns.
We will see the affect of this by taking a look at Barclays’ CET1 ratio, which is a regulatory measure of surplus capital. Regardless of returning £3bn of capital by means of buybacks and dividends, the financial institution’s CET1 ratio was nearly unchanged at 13.6%, versus 13.8% a yr earlier.
If Barclays can proceed to hit its profitability targets, I believe the shares ought to commerce nearer to their e-book worth over time. Maybe even above it. As I write, the shares are buying and selling almost 20% beneath their e-book worth of 357p, on a 2025 forecast price-to-earnings (P/E) ratio of seven. There’s additionally a 3.2% dividend yield.
Barclays nonetheless appears first rate worth to me, and I’m reassured by the financial institution’s newest outcomes. I believe the shares are price contemplating as a long-term purchase.
