Is it time to give up on Barclays plc, Restaurant Group plc and Aberdeen Asset Management plc?

Why a quick turnaround isn’t on the cards for Barclays plc (LON: BARC), Aberdeen Asset Management plc (LON: ADN) and Restaurant Group plc (LON: RTN).

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After recovering quickly from their Financial Crisis-lows, shares of Barclays (LSE: BARC) have done little more than stagnate in the ensuing seven years. Seemingly every opportunity the bank had to turn the corner has been squandered, whether it be failing to unlock value in its highly-profitable credit card arm or its inability to translate its strong American investment banking presence into decent profits during a record-breaking M&A boom.

Long-suffering shareholders wondering whether the near future will be better shouldn’t be holding their breath. The primary problem is the £51bn of bad assets on the books that dragged down overall return on equity (RoE) to a miserable 3.8% last quarter, a 20 basis point decline year-on-year. Bad assets aren’t the only issue as high-cost operations led to a staggeringly high Q1 cost-to-income ratio of 76%.

On top of this lurks the persistent under-performance of the bank’s oversized investment banking arm, which continues to post underlying RoE in the disappointingly low mid-single-digits. Increased capital requirements and trading regulations will continue to drag down profits, which coupled with high costs and the mountain of bad assets still to sell leads me to believe Barclays’ shares won’t be reversing negative momentum any time soon.

More pain ahead

The FTSE’s heavy weighting towards cyclical industries and foreign markets is borne out in the battering that shares of Aberdeen Asset Management (LSE: ADN) have suffered over the past year. The emerging markets-focused asset manager has suffered 12 successive quarters of outflows from its funds and recently dropped out of the FTSE 100 after share prices plummeted more than 35% in a year.

Despite plunging share prices, analysts are still bearish enough on the shares that trade at 14 times forward earnings, in line with the market at large and no screaming bargain. Half-year results posted earlier this month also saw management downplay short-term expectations and warn of further outflows to come. While emerging markets will turn around eventually, when the chairman of a company is warning of further pain to come, I take it as a good sign to avoid shares for the time being.

Elusive customers

Three profit warnings in quick succession have knocked shares of Restaurant Group (LSE: RTN) down to the tune of 47% since the beginning of the year. The latest release warned that full year like-for-like sales are expected to be down in the range of 2.5% to 5%. This is a worrying setback for the company as a strong domestic economy has seen consumer spending ticking upwards, which should translate into more money spent dining out.

The issue for Restaurant Group is that consumers are increasingly avoiding retail parks where the group’s Frankie & Benny’s or Chiquito restaurants are located. Lower foot traffic in these parks has been compounded by the rise of ‘fast casual’ dining that has stolen market share by attracting younger consumers. This problem won’t be going away any time soon, and while Restaurant Group has a healthy balance sheet and covered dividend, I won’t be touching the shares as long as same-store sales continue to fall.

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.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Aberdeen Asset Management and 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.

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