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Why Barclays PLC Should Be A Winner Next Year

There’s a little light appearing at the end of the banking tunnel these days, and in my perusal of 2014’s prospects for some of out top FTSE 100 companies, I’m turning my attention today to Barclays (LSE: BARC) (NYSE: BCS.US).

Barclays escaped the need for a government bailout by finding enough fresh private capital to evade disaster, and though it hasn’t exactly had a good time in recent years, at least we haven’t seen any of the eye-watering losses suffered by some.

Here’s Barclays’ five-year summary:

Dec Pre-tax EPS EPS Growth
Dividend Div Growth
Div Yield Div Cover
2008
£5,136m 47.60p -25% 10.65p   7.5% 4.5x
2009 £4,585m 22.32p -53% 2.31p -78% 0.9% 9.7x
2010 £6,065m 28.15p +26% 5.09p 120% 2.1% 5.5x
2011 £5,770m 25.65p -9% 5.56p 9.2% 3.4% 4.6x
2012 £797m 31.95p +24% 6.02p 8.3% 2.5% 5.3x
2013 (f)
£3,855m 23.94p -25% 6.48p 7.6% 2.4% 3.7x
2014 (f)
£4,782m 29.70p +24% 10.62p 64% 3.9% 2.8x

One thing that immediately strikes me is that looking at those 2008 figures which show a dividend yield of 7.5% covered 4.5 times by earnings, it looks like a pretty impressive bargain — especially when we think that the shares were on a year-end price-to-earnings ratio (P/E) of just 3!

Of course, by then it was pretty certain that profits were headed for a fall and the dividend was going to be slashed.

Hindsight

But still, if you buy a FTSE 100 company on a P/E of 3, you’re likely to either lose your money or make a killing — and we now know which it was. Just before those 2008 results were known in February 2009, Barclays shares were changing hands for around 50p apiece — and they have more than five-bagged since then to 265p!

Maximum pessimism, that’s what we had, and that’s always a good time to buy.

But what if you buy Barclays now?

Falling profit this year

Well, we can see there’s a 25% fall in earnings per share (EPS) currently forecast by the boys in the City, and that puts the shares on  forward P/E of just 11, which is below the FTSE’s average of around 14. And if those 2014 forecasts for a 24% rebound in EPS and a massive 64% hike in the dividend come off (and some recent forecasts are even higher), we’ll be looking at a P/E of under 9 and a dividend yield of 3.9%.

So how are things progressing?

But great prospects

In the bank’s third-quarter update released on 30 October, chief executive Antony Jenkins said the results “demonstrate the underlying strength of the Group, and the benefits of diversity, shown in the good progress made by several of our businesses in the quarter and year to date” and picked out UK Retail and Business Banking and a few other divisions for praise. He also told us that the bank is on to meet PRA leverage requirements by 2014.

An adjusted pre-tax profit of £4,976m was recorded, and the bank’s adjusted core tier 1 ratio was up to 11.3% — and I reckon that’s all setting a solid foundation for a return to growth in 2014.

Along with the other banks, Barclays has been a naughty boy — but it’s time to let it back in off the naughty step now.

Verdict: A return to winning ways in 2014!

And finally...

It's not just Barclays that's starting to look good again. No, the whole banking sector is also starting to come in from the cold after a few years of "banker" being considered a dirty word. That's why we've produced the all-new "Motley Fool's Guide to Investing in Banks", which takes a look at the UK's top five.

Want to know which one would be best for your money? Click here to get your personal copy of the new report today.

> Alan does not own any shares mentioned in this article.