Barclays’ (LSE: BARC) (NYSE: BCS.US) performance so far this year has been underwhelming to say the least, as the bank has come under pressure from numerous factors.
Although, as the saying goes, “the time to buy is when there’s blood on the streets”, so for me, as a contrarian, now is the time to buy.
Shareholder rebellion
One of the factors that has weighed on Barclays’ recent performance is the bank’s pay policy.
Unfortunately, Barclays and its management fellout of favour with investors, both large and small over the bank’s decision to increase the bonus pot by 10%. It’s easy to see why shareholders are displeased with this request, as Barclays’ profits collapsed 32% last year and the company had to ask shareholders to back a £5.8bn cash call.
However, despite protests, Barclays’ pay policy was passed at the bank’s AGM, implying that the majority of shareholders believed increasing the bonus pot was the right thing to do.
Losing staff
Still, although Barclays won the battle over pay the bank is struggling to keep staff. Indeed, three key men have already announced plans to leave the bank during the next year or so.
Specifically, Barclays has lost Hans-Jörg Rudloff, the chairman of Barclays’ investment bank. Hugh McGee, the head of Barclays’ US business and John Vitalo, the head of Barclays in the Middle East and North Africa.
Getting ready for growth
Nevertheless, while these setbacks are a concern, Barclays is primed for growth and when taking into account the bank’s current valuation, it appears that there has never been a better time to buy.
Key to Barclays’ growth is ‘Project Transform’, a strategy designed to cut costs and boost profits. Barclays plans to cut 10,000 to 12,000 jobs this year and there are rumors that further job cuts could be in the pipeline.
Further, as part of its transformation, Barclays intends to create a ‘bad bank’ to spinoff any unwanted assets or bad loans. Specifically, Barclays intends to spin off what it has called its exit quadrant, including a portfolio of loans at its European consumer unit, U.S. residential mortgage assets and parts of its corporate book in Spain and Portugal.
Getting rid of these underperforming assets should allow Barclays to concentrate on its profitable underlying business, which is performing well.
For example, during 2013, due to bad debt charges Barclays reported a loss of £3.1bn, which was equal to around 50% of adjusted pre-tax profit. Getting rid bad debts should boost profits.
Current City figures suggest that Barclays trades at a 2014 P/E of 9.3 and a 2015 P/E of 7.5 with a yield of 3.6% and 4.9% respectively for each year. This means that Barclays is cheaper on a forward basis than peers, Lloyds and RBS which trade at a forward P/E of 10.4 and 12.8.
