The Barclays share price is up almost 6% this morning, despite reporting a 38% drop in first-quarter profits to £913m. Barclays (LSE: BARC) also set aside £2.1bn to cover bad debts during the coronavirus crisis, against just £448m a year earlier.
In normal times, the FTSE 100 bank would be sharply down, but times are far from normal. Investors prefer to focus on the positives. In this case, a 20% rise in revenue to £6.3bn. The Barclays share price is down more than 40% from its January highs, and looks a tempting long-term buy for bargain hunters.
But there are plenty of reasons to be cautious. First, the dividend has gone, and we don’t know when it’ll be back. That wasn’t even the board’s decision. The Prudential Regulatory Authority pressured banks to focus their financial power on bailing Britain out of the Covid-19 crisis.
Bargain FTSE 100 stock
That means there’s no income stream while you wait for the UK economy — and Barclays share price — to recover.
Today, the board warned of a tough year, but we knew that, didn’t we? Near-zero interest rates will cost its UK retail business around £250m. Meanwhile, a regulatory clampdown on fees and overdrafts will cost another £150m.
Although profits at its international business fell from £1.1bn to £800m, there was good news here, as investment bank income rose 44% to £3.6bn. Traders have been taking advantage of stock market volatility, and April should be even better. This is one in the eye for activist investor Ed Bramson, who’s been pushing Barclays CEO Jes Staley to dump the investment bank.
I’d buy the Barclays share price
Today, Staley warned of a “challenging” year, which is an understatement. But he hailed the bank’s “diversification by business, geography and currency, which allows us to remain resilient through the developing economic downturn.”
Barclays’ common equity tier 1 capital ratio shrank from 13.8% to 13.1%, but is still above the bank’s 11.5% minimum regulatory hurdle.
The Barclays share price looks a bargain by conventional valuation methods, with a price-to-book valuation of just 0.3. However, these aren’t conventional times. The banks are also under political pressure to be lenient on bad debts.
Long-term buy-and-hold
The road to recovery will be long and the dividend has gone, at least until the end of the year, when management will review its position.
I think every portfolio has a place for Barclays, so why not buy it when the share price is down. The bank is also benefiting from the crisis, with increased trading income, and a surge in corporate lending to locked-down companies keen to boost liquidity.
The next leg of the Barclays share price recovery may take time, but I still think it’s a tempting long-term buy-and-hold today.
