Today I am looking at why I believe Barclays (LSE: BARC) (NYSE: BCS.US) could prove a lucrative investment.
Here are two numbers that I think help make the case.
0.5
Banking giant Barclays has one of the hottest growth profiles on the FTSE 100. Like the rest of the industry, the bank has been subject to severe earnings volatility in the years following the 2008/2009 financial crisis.
But following a period of significant streamlining, a steady run-off of poor assets and benefitting from the strong UK economic recovery, Barclays is well placed to enjoy a strong turnaround in the bottom line. Indeed, City analysts believe that the worst is now firmly behind the firm and expect the business to punch earnings growth of 23% and 31% in 2014 and 2015 respectively.
These numbers make Barclays an exceptionally cheap pick relative to its growth prospects, the firm boasting a price to earnings to growth (PEG) reading of just 0.5 times for this year — any reading below 1 is generally considered too good to pass up. And this readout moves to just 0.3 times for 2015.
630 million
In a bid to de-risk the business and boost the balance sheet, Barclays has been busily engaged in stripping out non-core assets and putting a greater emphasis on its High Street operations.
Famously the business announced plans back in May to scale back its Investment Bank arm, cutting its 24,000-strong workforce there by more than a quarter as chief executive Anthony Jenkins aims to reduce Barclays’ exposure to volatility across the fixed-income, currencies and commodities markets.
And Barclays is also busy cutting loose its overseas divisions, a shrewd move given the macroeconomic headwinds swirling around the global economy and the eurozone in particular. In September the business announced the sale its Spanish retail, wealth and investment banking businesses to CaixaBank for £630m, as well as the sale of its retail banking operations in the United Arab Emirates for £119m.
Risk reduction and a return to domestic consumer banking are key tenets to Jenkins’ turnaround strategy following the excesses of the Bob Diamond regime. Following last month’s divestments the bank’s head commented that “we remain on track to rebalance Barclays as part of our strategy to deliver sustainable returns for our shareholders,” and the chopping block is expected to remain busy with further significant divestments in the coming months and years.
