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The Barclays share price hits £2 as profits explode. What next?

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The Barclays (LSE: BARC) share price jumped early on Thursday morning, after the bank released a splendid set of quarterly results. Indeed, the shares were up to 200p, just a whisker short of their 52-week high, before dropping back. But what might send BARC even higher?

Barclays share price close to 2021 high

The share price has had a pretty good run lately. Due to Covid-19, the bank with the ‘Blue Eagle’ logo had a really rough 2020. BARC ended 2019 at 179.64p, but then coronavirus restrictions sent the stock plummeting. On 19 March 2020, the shares collapsed to an intra-day low of 73.04p, but then rebounded last summer. On 25 September 2020, BARC closed at 91.55p. However, after ‘Vaccine Monday’ (7 November 2020), the stock soared again, ending last year at 146.68p.

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As I write on Thursday morning, BARC stands at 197.76, down 0.68p

Barclays Q3 results wowed me

Unlike most UK rivals, Barclays operates as a universal bank, rather than just a retail bank. In other words, it includes an investment operation and has a sizeable commercial bank to handle corporate business. This broader business model sometimes helps to boost Barclays when UK banking is weakening. And this was certainly the case in its latest quarterly results for Q3.

Thanks to lively trading in capital markets and corporate deal-making fever, Barclays’ quarterly profits have skyrocketed. The bank unveiled Q3 revenues of £5.5bn and a pre-tax profit of £2bn. This was the group’s highest-ever Q3 profit, coming on the back of a solid H1. Profits were boosted by lower loan-loss reserves, while investment banking brought in close to £1bn in fees.

As a result of this improved performance, two important metrics improved at Barclays. First, return on tangible equity (RoTE, a measure of profitability) hit 11.9%. Second, the group’s common equity tier 1 (CET1) ratio rose to 15.4%, comfortably above its target of 13%-14%. Thus, the bank’s balance sheet is in rude health, despite Covid-19 setbacks. Also, quarterly earnings per share (EPS) came in at 7.6p, boosting year-to-date EPS to 30.8p.

What next for BARC?

As markets settle down, analysts don’t expect Barclays’ exceptional investment-banking revenues to continue much longer. But Barclays expects UK retail banking to be boosted by an ongoing consumer recovery and rising interest rates. Also, the mortgage business is strong, thanks to a booming housing market. But lending volumes remain subdued as consumers pay down their unsecured debts.

Often, Barclays’ results are a mixed bag, but these were outstanding in almost every respect. But can these sunlit uplands continue? I’m not so sure, yet I still see value in the Barclays share price today. BARC trades on a modest price-to-earnings ratio of 7.5 and a healthy earnings yield of 13.3%. The stock’s dividend yield is only 1.5% a year, but Barclays has billions of spare capital to boost dividends and buy back shares. I don’t own BARC today, but I’d buy at the current price. And then I’d cross my fingers and hope the world finally wins the war against Covid-19!

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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