At the end of last week, after the results of the general election became clear, shares in Barclays (LSE: BARC) jumped to a 52-week high.
The results of the election brought some much-needed certainty for Barclays and the rest of the financial sector. While we still have Brexit to get through, which is likely to be a long and drawn-out political process, the election did remove a lot of uncertainty for investors.
Now that Boris Johnson and his team have a majority, they can push ahead with plans to help the country leave the European Union without having to worry about disruptive tactics from either hard left or hard right.
Growth ahead?
This certainty is good news for Barclays because it means the bank can finally get on with planning for the future, without having to worry about a disruptive Corbyn-led Labour government pulling the rug out from underneath the financial sector.
Barclays has already spent the past three years planning for Brexit, by moving assets out of the UK and reorganising its legal structure. That means it should be reasonably well prepared for the divorce as it progresses over the next 12 months. Management can now focus on returning the group to growth.
As long as there’s not a severe economic depression in the UK, City analysts think the company will report earnings growth of 13% for 2019, followed by growth of 12% for 2020. Based on these growth targets, shares in the bank are dealing at a 2020 PE of 7.8, which seems to suggest the stock offers value at current levels.
Also, the stock is trading at a price to book value of just 50% implying that if the group were sold off or broken up right now, the underlying assets would worth 100% more than the current stock price.
Global giant
Barclays’s valuation is exceptionally appealing, in my opinion, mainly because this is a global banking powerhouse, with a robust balance sheet and strong international reputation.
Indeed, Barclays has spent the last decade building its global investment banking business. While it hasn’t always been smooth sailing, these efforts are starting to pay off as competitors exit the industry.
Group pre-tax profits at the corporate and investment bank jumped to £882m in the third quarter, an increase of 77%. I think it’s highly likely this trend will continue and possibly even accelerate as global economic risks recede, and competitors continue to rationalise their investment banking arms.
With its substantial presence in London and New York, Barclays is well placed to capitalise on these rising international transaction volumes.
The bottom line
So that’s why I think the Barclays share price is an FTSE 100 best buy. Not only do shares in the bank appear cheap at current levels, but I believe the business is also well placed to benefit from rising global trade volumes and competitors’ woes. There’s also a dividend yield of 4.8% on offer for income seekers as well.
