The Barclays (LSE:BARC) share price fell to £1.33 after the Silicon Valley Bank (SVB) fiasco in March 2023. It then fell even further last year, to just £1.29 a share.
But the turnaround’s been incredibly strong, driven by a changing macroeconomic environment, stronger forecasts for UK growth, and resilient results.
If I’d invested £1,000 in the stock when it hit £1.29, today I’d be a very happy man. My investment would have surged by 83.7%, giving me £1,837 plus dividends.
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The aforementioned robust results continued on Thursday (1 August). The British bank beat analysts’ estimates despite earnings dipping.
Things are going right
Momentum’s a really important thing in investing. It’s not just about the momentum of the share price, but the business as a whole.
As an investor, I look for companies that are continuing to outperform analysts’ expectations. And after two consecutive earnings beats and the announcement of a three-year plan to improve the business, Barclays appears to have plenty of momentum.
In the first-half results, Barclays reported a 9% drop in first-half pretax profit to £4.2bn, surpassing analysts’ forecasts of £3.8bn. Remember however, the first half of 2023 was really unique with interest rates still rising.
This decline from £4.6bn last year was mitigated by a strong investment banking performance, which saw a 10% income increase to £3.02bn in Q2.
Despite a 4% drop in net interest income in its consumer bank, Barclays announced a £750m share buyback and a 2.9 pence per share dividend.
Second-quarter net profit was £1.2bn, slightly below last year’s £1.3bn but above the £1.03bn expected by analysts.
The stock pushed upwards in early morning trading, but perhaps less than expected. I’d suggest the reaction was slightly muted because of the Bank of England’s (BoE) rate decision, due later in the day.
Why would I buy Barclays now?
Barclays is trading around 7.3 times forward earnings. That still sounds cheap to many of us, but a year ago it was trading around 4.5 times earnings.
So why would I buy Barclays stock now? Well, firstly we all wish we’d have bought Barclays stock when it crashed. I topped up after the SVB fiasco, but unfortunately had to sell some of my holdings to buy a house.
However, if it wasn’t for the fact that Barclays remains one of my largest holdings, I’d certainly consider buying more today.
That’s simply because the economic environment’s improving, the new government appears to offer more stability for UK-focused stocks, and that gives us more clarity on what we expect to happen.
One supportive trend is falling interest rates — yes, falling. Higher interest rates aren’t always good for banks, and they actually benefit from the unwinding of something called a structural hedge.
Forecasts suggest that Barclays’ hedging practices could bring in more than £6bn in 2025 alone.
The biggest concern is that we’re now expecting too much from the BoE, the UK economy, and Barclays. Personally, I’m optimistic.
