Unfortunately, Barclays’ (LSE: BARC) (NYSE: BCS.US) recent rights issue, along with numerous fines levied on the bank by financial regulators, has spooked some investors who now feel that the bank could be heading for more trouble.
Nevertheless, I feel that Barclays still has plenty going for it and these are just three of the reasons why I believe that the bank will outperform its peers over the long-term.
Short-term pain, long-term gain
Although Barclays’ recent rights issue was deeply discounted, the offering was 95% subscribed, mostly by institutional investors almost immediately after the announcement. This high demand and willingness to support Barclays’ cash call, indicates to me that many believed Barclays was taking the right course of action.
Moreover, now Barclays has raised this cash the bank is well capitalised and there is less risk that the bank will have to tap the market for cash at a later date. Indeed, while City analysts are still debating whether or not some of Barclays’ peers will need to raise more cash to meet capital requirements, Barclays’ shareholders can take piece of mind knowing their bank is well capitalised for the time being.
Accelerating earnings
What’s more, the City is expecting Barclays to accomplish big thing over the next few years and analysts currently expect earnings to expand 23% during 2014 and then 20% during 2015. In addition, Barclays is also trimming the fat though its ‘project transform’, cost saving program. So far, this program has cost the bank £741 million to implement but over the long-term is should pay for itself.
Furthermore, one of the most attractive things about Barclays is its exposure to Africa, which should turn out to be a profitable region for the bank over the long term. Indeed, Africa is just starting to wake up as a number of sub-Saharan African nations are beginning to tap the global markets for cash and Barclays is there to help them.
For example, The Seychelles was the first sub-Saharan African country outside South Africa to issue a global sovereign bond in 2006, and the island nation only raised a mere $200m. In comparison, last year nearly $5 billion of bonds were issued by African nations.
Zambia has been the most recent country to tap the global market for cash and Barclays has been hired to make sure everything goes to plan.
Doubling up the dividend
My final point is Barclays’ dividend. In particular, with the bank’s earnings set to surge during the next few years, City analysts expect Barclays’ dividend payout to follow suit. In fact, the City currently expects Barclays’ to offer shareholders an annual payout of 14.3p per share during 2015, more than double its current offering.
