Barclays PLC's Fine Doesn’t Dampen My Optimism For The Stock

Barclays PLC’s Fine Doesn’t Dampen My Optimism For The Stock

I’m still bullish on Barclays PLC (LON: BARC) despite a recent fine.

Peter Stephens

Having held various senior management positions in the manufacturing sector, Peter founded his own manufacturing company in 1996. This was subsequently sold in 2007. Meanwhile, his passion for investing (which began during the privatisations of the 1980s) remains strong and he couples this with writing for The Motley Fool as a Contractor. His investment style is value-oriented; focusing on company fundamentals, as well as assessing the strength and presence of a competitive advantage. While above-average growth prospects remain very attractive, a greater focus on dividends has crept in since Peter became a part-time retiree in 2007.

Published 4 October, 2013 8:48 am BST

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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.

Barclays (LSE: BARC) (NYSE: BCS.US) was recently fined £50 million by The Financial Conduct Authority for acting ‘recklessly’ by failing to disclose £322 million in fees paid to Qatari investors.

The incident occurred in the midst of an emergency cash call around 5 years ago, with Barclays said to be contesting the fine.

However, it doesn’t put me off the company and, in fact, I would be thinking of adding to my shareholding were it not for the rights issue, in which I’ve taken up my rights.

Indeed, the fine is relatively small fry for a bank on the scale of Barclays, being just £50 million compared with the recent rights issue of £5.8 billion. So, although the bank is contesting payment, even if it does have to pay it is unlikely to make a significant difference to the performance of the company.

Furthermore, I believe that Barclays is very well positioned to take advantage of an improving UK economy and I remain bullish on the company for the following three reasons.

Firstly, the rights issue improves the financial strength of the company. Although many investors felt that the regulator was being overly cautious when it said that Barclays needed to improve its balance sheet strength, many did not and in raising capital it should not only satisfy the regulator but also improve market sentiment.

Secondly, Barclays continues to make reliable dividend payments, with stable-mates Lloyds and RBS only just starting to consider returning cash to shareholders. So, a buyer of Barclays today can expect to enjoy a yield of around 2.4% and, when you consider that Barclays will now aim to pay out up to 45% of future earnings as dividends, income-seeking investors should be positive on the stock.

Thirdly, Barclays offers good value, as can be seen by its price to earnings (P/E) ratio of just 8.5. This compares favourably to the wider banking sector and also to the FTSE 100, which trade on P/Es of 14.9 and 16.3 respectively.

So, improved sentiment through increased financial strength, a growing yield and a good value share price are all reasons why I was happy to take up my rights as a Barclays shareholder and why I’m bullish about its future prospects.