BCS - Barclays: 0.4x Book Value While Profitability And Quality Improve

2024-01-24 18:23:18 ET

Summary

• Barclays has seen an improvement in its growth trajectory in the last five years, primarily due to a combination of higher interest rates and investment banking tailwinds.
• This appears to have slowed following greater economic uncertainty and headwinds from contractionary policy, although Barclays is positioned well to maintain its fundamental improvements.
• Management has progressively improved its profitability while maintaining a competitive retail and corporate banking business. With a ROE exceeding 10%, we believe it has turned a corner.
• Barclays is still lagging behind its peers but is slowly closing the gap. We see scope for progress in the coming years, although this is dependent on superior execution.
• Barclays is trading at 0.4x BV and an NTM P/E ratio of 5x. Even with its weaknesses, this valuation appears completely incorrect.

Investment Thesis

Our current investment thesis is:

• Barclays is an industry-leading bank in both the retail and commercial/investment banking segments. Unlike most of its European peers, it is uniquely positioned in this regard. The company has slowly improved during the last decade, finally reaching a fundamentally attractive level in our view.
• At an ROE of >10% and a NIM in the 20% ballpark, Barclays is positioned perfectly to consistently generate shareholder returns through distributions, even if its share price remains stagnant.
• If management can improve the profitability derived from its book, which is the final step in our view, the company could be propelled materially forward. With its current level of profitability, Management has greater resources to achieve this over the coming years.

Company Description

Barclays PLC ( BCS ) ( OTCPK:BCLYF ) is a British multinational bank, operating as two divisions: Barclays UK and Barclays International. It has commercial and investment banking operations, alongside providing a host of other financial services globally....

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