Barclays‘ (LSE: BARC) share price dipped following the publication of its 2024 results on Thursday (13 February), but the numbers look fairly good to me.
With the stock still trading well below its book value, should investors consider buying the dip?
Solid results provide support
Barclays’ pre-tax profit rose by 24% to £8,108m last year, slightly above broker forecasts. Shareholders get a 5% dividend increase and have also benefited from £1.8bn of share buybacks over the last year.
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I’m not always a fan of buybacks, but Barclays has been buying back its shares below their book value. For a healthy business, this can be good way to boost the share price. Having fewer shares in circulation increases a company’s book value per share, which can drive share price gains.
Barclays’ tangible book value per share rose by 8% to 357p last year. That’s more than 20% above the share price, at the time of writing. Chief executive CS Venkatakrishnan is planning more buybacks for 2025 too.
What to worry about
One area that’s causing some stress for UK lenders at the moment is motor finance – used car loans. Barclays stopped operating in this area in 2019, but the bank admits that “historical operations before this time” could be affected.
The UK regulator’s investigation into this sector is ongoing and no one knows what the outcome will be. But rival Lloyds (a much bigger motor sector lender) has already set aside £450m.
Another risk is the long-term volatility of profits from the group’s investment bank. This division’s performing well at the moment, as deal activity recovers. Profits rose by 18% to £3.8bn last year –nearly half the group total. But investment banking tends to go through weak patches periodically.
My verdict
I’m encouraged by what I’m seeing at Barclays. Most importantly, I’m happy to see the bank’s all-important profitability metrics are improving.
Return on tangible equity (RoTE) rose to 10.5%, from 9% in 2023. Management’s targeting a RoTE figure of 11% for 2025 and “greater than 12%” for 2026.
This is important because it’s probably the best measure of how much surplus cash a bank’s generating each year. All else being equal, higher returns on equity mean a bank will be able to invest more in growth or fund larger shareholder returns.
We can see the impact of this by looking at Barclays’ CET1 ratio, which is a regulatory measure of surplus capital. Despite returning £3bn of capital through buybacks and dividends, the bank’s CET1 ratio was almost unchanged at 13.6%, versus 13.8% a year earlier.
If Barclays can continue to hit its profitability targets, I think the shares should trade closer to their book value over time. Perhaps even above it. As I write, the shares are trading nearly 20% below their book value of 357p, on a 2025 forecast price-to-earnings (P/E) ratio of seven. There’s also a 3.2% dividend yield.
Barclays still looks decent value to me, and I’m reassured by the bank’s latest results. I think the shares are worth considering as a long-term buy.
