Is the share price slump at Barclays plc finally set to end?

Barclays plc (LON: BARC) shares have been out of favour, but are starting to turn upwards. It could finally be time to buy.

| 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.

Looking back on the UK-focused FTSE 100 banks since the financial crisis, I see some irony in that Barclays (LSE: BARC), the one that didn’t need a government bailout, has been the market’s least favourite of late.

Over the past 12 months, shares in Lloyds Banking Group have dipped by a modest 3%, and Royal Bank of Scotland has posted a 22% gain. But Barclays shareholders are sitting on a 9% loss.

Looking back five years shows a similar picture. RBS shares are down 17% (as its earnings and dividend recovery have really only just got properly under way), while Lloyds with its earlier return to health has seen a 35% share price gain. Barclays? Down 23% over five years.

To be fair, since the peak in 2007 just before the crisis exploded, Barclays shares have actually lost the least with a fall of 69%. Lloyds shares are still down 82%, and RBS has lost 97%.

Misconduct

Barclays’ big problem has been regulatory misconduct, and it’s faced significant losses from fines and related costs. For the 2017 year just ended, the bank recorded £1.2bn in litigation and conduct costs, including £0.7bn relating to the long-running PPI scandal.

Ten years on, the Serious Fraud Office has raised charges related to the deal that saved Barclays from going cap-in-hand to the taxpayer in 2008. The bank secured a £12bn loan from Qatar to keep it afloat, but the SFO alleges that a £2.3bn loan from Barclays to Qatar Holdings was an illegal sweetener.

So much focus and cash drawn away from the straightforward business of rebuilding a profitable bank has led to a slump in EPS, which dropped from 15.3p in 2013 to just 3.5p for 2017 — earnings had previously been growing strongly in the early post-crash recovery years.

A resulting key problem has been the failure to get the dividend back to any sort of reliable growth, as the two bailed-out rivals have achieved.

Dividends at Lloyds were reinstated in 2014 and rose to yield 4.5% last year, and forecasts suggest close to 6% this year. Even laggard RBS is finally set to rejoin the dividend club in 2018 with a yield of 3%, and there’s better than 5% indicated for 2019.

Dividend

Barclays’ dividend, however, was slashed for a second time in 2016 to yield just 1.3%, after having started to pick up.

But there’s good news on the dividend front, after the bank confirmed the 3p per share expected for 2017 and told us it intends to more than double that to 6.5p per share in 2018.

Chief executive James E Staley, while recognising the presence of some remaining legacy issues, added: “I am confident in the capacity of this business to generate excess capital going forward, and it remains our intention over time to return a greater proportion of that excess capital to shareholders through dividends.

The 2018 yield would be around 3% at today’s share price, which is still some way behind the 5.7% on offer from Lloyds (which remains my favourite of the big banks), but it represents a significant milestone.

On a forward P/E of around 10, I don’t see Barclays as the best value in the sector right now, and the SFO thing is a big worry. But I’m cautiously optimistic that the modest share price recovery since early February will continue.

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.

Alan Oscroft owns shares in Lloyds Banking Group. 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

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »