What’s Telling Me to Buy Barclays plc Today

Royston Wild considers the investment case for Barclays plc (LON: BARC).

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Today, I am looking at Barclays (LSE: BARC) (NYSE: BCS.US), and debating whether to deposit the stock in my personal investment portfolio.

July update gives investors the jitters

Barclays shook investors last month by announcing that the Prudential Regulation Authority had put the bank’s leverage ratio at 2.2%, well short of the required 3% and revealing a potential £12.8bn black hole in the company’s capital requirements.

The move sent shares plummeting and followed earlier assurances from the bank that it was well on course to hit the 3% target by the middle of next year. Instead, Barclays has been forced into a radical, four-way plan to boost reserves, including a massive £5.8bn rights issue.

As well, the bank also announced in July’s half-yearly report that it has boosted provisions for the mis-selling of payment protection insurance (PPI) by an additional £1.35bn. This takes the total expense to £3.95bn, although Barclays warned that this figure could still yet increase.

Promising long-term drivers cannot halt profits slide

In my opinion, the company’s Barclays Capital investment banking division and lucrative Barclaycard arm bode well for future growth. And adjusted profit before tax in these divisions advanced 7% and 3% in these areas in the January-June period. As well, the firm’s expanding operations across Africa also saw profits increase 16% from the same 2012 period, another lucrative long term provider.

These bright spots could not prevent group profit falling 17% during the first half to £3.59bn, however. This drop was predominantly due to a £640m cost attributed to its Transform programme.

Earnings outlook still under the cosh

Barclays is expected to report an 8% decrease in earnings per share for 2013, according to the City’s top analysts, to 32p. But a 14% snapback, to 38p, is forecast for the following 12-month period.

On top of this, the bank currently carries a dividend yield of 2.4% for this year — well below the FTSE 100 average of 3.1% — although this is anticipated to rise to 3.8% in 2014.

Still, it could be argued that Barclays’ current troubles, combined with the unappealing investor returns projections for the immediate future, are currently factored into the share price. The bank currently trades on a P/E ratio of 9 and 7.6 for 2013 and 2014 respectively, comfortably within value territory below 10. This could prove to be a snip for those who believe in the bank’s longer term earnings potential.

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> Royston does not own 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.

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