Is Management Risk A Threat To Value At Barclays PLC?

Barclays PLC (LON: BARC) remains greatly overvalued at 270p a share, argues this Fool.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investors reacted positively to the news that Antony Jenkins had left Barclays (LSE: BARC) (NYSE: BCS.US) last week. He was pushed, but that’s not the important part of the story: what counts is whether shareholder value is up for grabs right now. 

Well, if history is a guide, the celebration may be short-lived…

Uncertainty

The bank “may not pick its next chief executive until early next year, potentially leaving new Chairman John McFarlane in charge for at least eight months“, Reuters reported on Friday. When such stories emerge, they are rarely welcomed by the market. 

Mr McFarlane may lead the show for longer, however, and that’s likely the reason why Barclays has outperformed its rivals on the stock exchange since the announcement was made on 8 July.

For the record: at 273.8p, its stock currently trades in line with the 52-week high of 276.62p that it recorded on 24 June. 

Antony Jenkins

Mr Jenkins was appointed on 30 August 2012.  Barclays stock had appreciated by almost 50% during his tenure, but most of the gains were recorded in the first five months of trade, meaning that anybody who had invested in Barclays at around 300p a share between February and May 2013 would have so far recorded a paper loss of about 9%, only partly mitigated by dividends.

Academic research shows that when a management shake-up occurs, shareholder value is likely to be up for grabs for some time, but favourable trading conditions tend not not last unless proper changes are implemented. And in this environment, there aren’t many ways to deliver value at Barclays, really.

New leadership is required to accelerate the pace of execution going forward,” Barclays said last week, adding that the departure of Mr Jenkins “does not signal any major change in strategy“. Hence, relentless cost-cutting will continue — that, at least, emerges from the release.

If so, we might hear about thousand of job cuts at the end of the month,” a London-based banker told me today (its interim results will be released on 29 July).

John McFarlane

Barclays is not efficient, we are not productive, we are cumbersome“, Mr McFarlane told the BBC last week. 

He doesn’t have an easy task. Mr McFarlane must improve returns while maintaining competitiveness and boosting the valuation of a stock that is still significantly overvalued at its current levels, in my view, based on fundamentals and trading metrics. 

Here’s another problem: investors seem to be betting on Mr McFarlane, but if he fails there will not be many executives around who would be able to lead Barclays and push its equity valuation closer to 400p rather than to 200p. Since the collapse of Lehman Brothers, the stock has traded in the 200p/300p range —  and I doubt that a faster pace of execution alone will solve its problems. 

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.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »