It’s no secret that Barclays (LSE: BARC) is struggling. The bank’s shares have been under constant selling pressure since the beginning of the year and have lost around 19% year-to-date, excluding dividends.
These losses might be understandable if this was just a one-off. Indeed, all of Barclays’ major peers have had a turbulent start to the year and shares in HSBC have performed even worse, losing 19.5% year-to-date, excluding dividends. However, shares in Barclays have been falling since the beginning of 2013 and since the start of August last year, the group’s shares are down by almost 40% as management has continued to flip-flop over the bank’s direction.
Barclays has continually failed to meet City earnings estimates, which are themselves based on targets set by management, every year since 2012. It’s not as if these objectives have been particularly high either. Management has been consistently lowering the bar but still Barclays has failed to meet its goals.
For the year ending 31 December 2016, analysts expect Barclays to report earnings per share of 15.1p, down 9% year-on-year and more than 40% below the figure of 25.7p per share reported for full-year 2011. As a quick comparison, this time last year the consensus estimate suggested that Barclays would report earnings per share of 25p for full-year 2016.
A better pick
Barclays has proven over the past five years that the bank just can’t be trusted to meet targets and generate returns for investors. Over the same period, Africa-focused financial services firm Old Mutual (LSE: OML) has grown pre-tax profits by more than 50%. While earnings per share have barely budged over the period (up 7.2% since 2011) The company has increased its per-share dividend payout to investors by 80% since 2011, and the payout remains covered more than two times by earnings.
At present shares in Old Mutual trade at a forward P/E of 9.6 and support a dividend yield of 5.3%, compared to Barclays’ valuation of 13.9 times forward earnings and a dividend yield of 1.8%.
Clear cut goals
Unlike Barclays, which seems to lack direction and ideas as to how to generate returns for shareholders, Old Mutual is currently evaluating the benefits of a breakup to unlock value for investors.
The company has four main business divisions including a 66% stake in OM Asset Management PLC, the New York-listed boutique money manager; a 54% stake in Johannesburg-listed lender Nedbank, its emerging markets business based in South Africa; and a wealth management arm focused on the UK. According to a press release issued by the company today, management has already received interest from would-be buyers of its stake in OM Asset Management PLC. Any asset sales are likely to result in cash returns to investors, and there’s a chance a suitor could come in and make an offer for the business as a whole.
The bottom line
So, if you’re looking for a company that prioritises shareholder returns and has a definite plan for its future, Old Mutual seems to be a better investment than fumbling Barclays.