Barclays (LSE: BARC) has started 2024 with a boom. The share price is up 23% year to date, which makes a change from the dreary performance of the two years prior. I thought it was time to see if this giant is worth a place in my Stocks and Shares ISA.
The share price fell over 15% in 2022 and 3% in 2023. As it tends to go in the investing world, just when things start to look bleak, the company catches markets off-guard.
Headline earnings
Barclays surprised markets in February when it announced a plan to return £10bn to shareholders over the next three years.
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The pledge from the Barclays CEO included reorganising the bank into five divisions, with mostly new management in charge. The bank is doing this to improve its performance, as it has faced criticism in recent years for relying too much on investment banking.
The bank plans to return a total of £10bn to its shareholders through share buybacks and dividends, well above the £6.1bn given to shareholders between 2019 and 2022.
The ambitious forecast from Barclays was a nice surprise, but markets also perceived it as attainable. They bought into the plans, causing the shares to rise 20% in the following three weeks.
Key stats
There are some key fundamental stats that highlight Barclay’s good value. The company has a forward price-to-earnings (P/E) ratio of just 6.1x and a fair book value of 0.4x (vs a theoretical target of 1). The P/E isn’t extensively cheaper than peers such as Lloyds Banking Group (7.8x) or NatWest Group (6.9x), but it is much lower than US banking giants JPMorgan Chase (11.8x) and Bank of America (11.3x).
The company also provides a stronger dividend yield at 4.3% than the FTSE 100 average yield.
When I combine the planned fundamental business changes with an attractive current valuation, Barclays starts to really appeal to me.
Upcoming earnings
The next Barclays earnings report is very timely for this article, as it is due imminently. Revenue estimates have been trimmed in the run-up to the release, and earnings are likely to be lower than the bumper 2023 numbers. Barclays is expected to report a pre-tax profit of £2.2bn, down from £2.6bn reported in Q1 2023.
But last week, Barclays maintained a broadly optimistic view on the earnings outlook for UK banks in the coming quarters, mentioning a recovery in net interest margins (NIM).
Risks
One risk that I can highlight about Barclays — and this applies to any company that announces a restructuring — is that I am at the company’s will to deliver on its promise.
A successful execution can definitely be the catalyst to turn Barclays around, and I’d be patting myself on the back for buying into it. But if bumps and hurdles start to present themselves in the coming months, investors will start to price the positives of a restructuring out of the shares.
Overall
I like the industry, the valuations, and the pledge to return value to shareholders enough to take on the risk of buying Barclays. And there’s no better time than a fresh new tax year to start finding these new additions.
