The Barclays share price is rising: should I buy now?

The Barclays share price is up 45% in the past year. Royston Roche makes a deep dive analysis on this stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Barclays (LSE: BARC) share price has risen about 45% in the past year. It has outperformed the FTSE 100 index, which rose 10% in the same period. It also beat Lloyds Bank‘s return of 35%. 

The share performance has been encouraging. However, there is no guarantee that the past performance will continue. Should I consider buying the stock for my portfolio?

Barclays’ fundamentals

Barclays reported a 6% drop in total income in its first-quarter results. In my opinion, the results are not bad considering the Covid-19 disruptions. Barclays’ international income was down 5% at £4.4bn, and its UK income was down 8% at £1.6bn. The reopening of the sectors and improved macro environment should help the bank to return to growth.

The macro-environment has changed a lot since I last reviewed the stock. The successful vaccination drive and the national lockdown have reduced Covid-19 cases drastically in the UK. Also, in my opinion, the Brexit disruptions have been less than initially feared. According to the recent Halifax house price index for May, the typical UK home is worth approximately £262,000, a growth of 9.5% year on year. All these factors are a big positive for Barclays’ share price.

Pre-tax profits jumped to £2.4bn from £0.9bn for the same period last year. This was mainly due to lower impairment charges due to the improved economic outlook. The return on tangible equity (RoTE) also improved to 14.7%. It has a stable balance sheet. The CET1 (common equity tier 1) ratio came at 14.6%, above the management’s medium-term target of 13%-14%. The ratios are also above the regulatory requirement.

Risks to consider

The cost-income ratio increased to 61% from 52% during the same period last year. The cost-income ratio is an important financial metric when analysing banking stocks; it is derived by dividing the operating costs by the operating income. Operating expenses rose due to higher variable compensation accruals and also due to Covid-19 costs. Management expects operating costs to be higher this year. I believe this was the prime reason for the sell-off in Barclays’ shares on the day the results were announced. 

In its outlook, the management sounds cautious due to the uncertainty caused by the Covid-19 pandemic. Also, in my opinion, there could be one-off real estate costs as the bank is reviewing its real estate. It is closing a lot of physical branches. This is good in the long-term due to lower operating costs. However, it should ensure that the branch closures do not disrupt the business. The bank is also facing competition from new fintech companies that are more technologically advanced.

Conclusion

I conclude that the bank is fundamentally strong. It is geographically diversified as income from international business makes around 73% of total income. Also, the bank has less reliance on net interest income, which is good in the current environment. In my opinion, interest rates will be low for a considerable time to stimulate growth. I would consider buying Barclays shares in the coming months. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. 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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »