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

Young woman holding up three fingers
Investing Articles

3 stocks Fools bought over 10 years ago and still hold

The Motley Fool’s approach to investing prioritises buying and holding quality stocks for long periods of time.

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

8.1% yield! Here’s the dividend forecast for British American Tobacco shares through to 2027

British American Tobacco shares have been a prized commodity for investors seeking a large passive income. Are they a potential…

Read more »

House models and one with REIT - standing for real estate investment trust - written on it.
Investing Articles

1 FTSE 250 stock trading well below book value

Stephen Wright thinks investors have a number of attractive possibilities with a FTSE 250 REIT trading at a discount to…

Read more »

Edinburgh Cityscape with fireworks over The Castle and Balmoral Clock Tower
Investing Articles

Up 10% and 9% in a week! Are these 2 FTSE 100 stocks set for a stellar recovery?

Harvey Jones picks out two overlooked FTSE 100 stocks that burst into life last week and examines whether they can…

Read more »

Hand is turning a dice and changes the direction of an arrow symbolizing that the value of an ETF (Exchange Traded Fund) is going up (or vice versa)
Investing Articles

3 standout ETFs to consider for an ISA or SIPP in May

ETF products can be a great choice for an investment account or SIPP. Here are three with significant long-term return…

Read more »

ISA coins
Investing Articles

£20,000 invested in this Stocks and Shares ISA 5 years ago is now worth…

Our writer looks at the typical returns on an ISA over the past five years. But with a bit of…

Read more »

Shot of an young mixed-race woman using her cellphone while out cycling through the city
Investing Articles

Here’s the dividend forecast for Rolls-Royce shares through to 2027

Do predictions of explosive dividend growth make Rolls-Royce one of the FTSE 100's hottest dividend shares? Let's take a look.

Read more »

Businessman hand stacking up arrow on wooden block cubes
Investing Articles

Up 14% in a week but still at a 5-year low! Can this beaten-down UK share lead the next bull run?

Harvey Jones has been keeping close tabs on a troubled UK share that suddenly sprang into life last week. So…

Read more »