Why I Still Expect Barclays PLC To Deliver Substantial Gains

The announcement of a rights issue hit shares in Barclays PLC (LON:BARC). However, this investor reckons that the shares are cheap enough to still reward buyers.

| 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.

Barclays (LSE: BARC) (NYSE: BCS.US) shares fell hard earlier this week when the company announced a clutch of bad news with its half-year results. The biggest news was the fact that the banking regulator (the Prudential Regulatory Authority) is demanding that Barclays adds £12.8bn to its coffers by June 2014.

Bosses have decided that a big chunk of this can be raised from tighter controls and future earnings. However, the bank will seek to quickly raise £5.8bn from shareholders. This will be achieved through a heavily discounted placing of new shares. Soon — the exact timetable is yet to be confirmed — shareholders will be given the chance to purchase one additional share in the bank for every four that they already own. The price of each of these new shares will be 185p, a 40% discount to the price that Barclays shares traded at before the announcement.

Share price reaction

To this news, Barclays also added another £1.3bn of PPI insurance compensation costs. The result is that since these announcements, shares in Barclays have lost 6%.

As a holder, I actually find this encouraging. Despite the big fundraising and the considerable PPI cost, Barclays shares are still ahead in 2013.

Though fears of a fund raising have been proved correct, there are enough investors seeing value in Barclays to support the shares. Now that the fundraising has been announced, a lot of uncertainty has evaporated. The Prudential Regulatory Authority has declared the level of capital that Barclays must hold. I cannot see how the PRA can change its demands anytime soon without incurring a catastrophic loss of credibility.


Once the fundraising is done, investors will return to valuing Barclays on the basis of its profits, dividends and prospects. Currently, Barclays is expected to make £5.5bn of profits in 2014. Comparing that with today’s market capitalisation of £37bn, even with a larger number of shares in issue, Barclays still trades on an undemanding valuation.

I shall be taking up my rights for new shares and expect the shares to be significantly higher by the end of 2013.

A collection of other shares to win in the long term have been selected by our team of analysts here at The Motley Fool. Their analysis can be found in the latest Motley Fool report “5 Shares To Retire On”. This research is entirely free and will be delivered to your inbox immediately. Just click here to get your copy today.

> David owns shares in Barclays.

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.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

3 top FTSE 100 value shares I’d buy before August!

These FTSE 100 heavyweight shares have considerable long-term potential. And at current prices, I think they are too cheap to…

Read more »

Investing Articles

Here’s why I’m selling my Lloyds shares to double down on this FTSE 100 stock

Our writer digs into why he prefers HSBC over Lloyds shares right now, despite both performing really strongly in recent…

Read more »

Investing Articles

I’d invest £12,500 in this 1 stock to bag £1K of passive income!

Building a passive income stream through dividends is one of this writer’s biggest ambitions. Here’s how one stock could help.

Read more »

Investing Articles

3 cheap stocks to consider buying for the AI revolution

Investors looking for AI stocks to buy might be worried about high valuations amid current market euphoria, but these three…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Earnings up 20%! But this UK small-cap stock may just be getting started

Are we about to see enduring growth from this UK small-cap business with a rising stock price ahead over the…

Read more »

Investing Articles

1 FTSE 250 stock I’d give a wide berth… for now

One of the worst performers on the FTSE 250 index is a stock that Sumayya Mansoor has decided she won’t…

Read more »

Investing Articles

The FTSE 250 is brimming with potential, especially in stocks like this one

The main Footsie index gets all the attention but its little brother, the FTSE 250, is full of growth potential.…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

What on earth happened to the Premier African Minerals (LSE:PREM) share price?

The Premier African Minerals (LSE:PREM) share price is down a whopping 85% in the last year, so what happened? Gordon…

Read more »