After a bumper 2021, is the Barclays share price ready for take-off?

As Barclays delivers record profits, Andrew Mackie explores whether or not its share price could about to be re-rated higher

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Hot on the heels of HSBC on Tuesday, Barclays (LSE: BARC) reported record profits for 2021 on Wednesday. As a new CEO takes over, the economy continues its recovery from Covid, and interest rate rises loom, the Barclays share price could be about to surge. So, is it a company I would add to my portfolio today?

A not-so-traditional bank

As a major clearing bank with a significant, if diminishing, presence on the high street, Barclays provides all the bog-standard services that one would expect of a bank, including loans, mortgages and savings.

Beyond conventional banking, it has a diversified business model. It is the sixth largest investment bank and the largest outside the US. It also operates a very successful credit cards business and payments system. Together, these operations helped deliver record profits before tax of £8.4bn in 2021.

What attracts me to Barclays is the sheer breadth of its business model. It is able to benefit throughout different phases of the macro-economic environment. This explains why its share price recovered so much faster than its rivals since March 2020.

While interest rates remained at near zero throughout 2021, it was able to maintain margins through its investment banking proposition as trading activity soared. Today though, as interest rates begin to rise, net interest income (NII) will provide more traditional sources of revenue. It estimates that for every 0.25% rise, NII will improve by £500m. In addition, its latest spend data from Barclaycard shows that debit and credit spend in January 2022 was up 7.4% on January 2020 (that is, pre-pandemic).

Maintaining its competitive position

In the past 10 years, the banking landscape has been completely transformed. Digitisation has been at the forefront of this revolution. Today, customers want a seamless and efficient method of interaction in all aspects of their lives and banking is no different. So, as branch visits continue their downward trend, Barclays is signing up 11,000 new customers to its mobile app each week.

Delivering next-generation financial services, requires a huge investment to upgrade legacy systems and move operations to the cloud. Digital-native firms (the so-called Fintechs) are pushing hard and chipping away at margins in more lucrative parts of financial services, particularly payments. The bank has already invested over £500m to realise value from its payments’ platform.

Investing in modernising its legacy infrastrucutre doesn’t come cheap. Although its cost: income ratio is falling and heading for its target of 60%, a deterioration in economic conditions would inevitably lead to its reversal and have a knock-on effect on its modernisation strategy. Although I see Covid as a small risk, rising geopolitical tensions in Russia could hit consumer and business confidence. A weakening economic landscape would lead to revisons to calculated impairment costs thereby hitting profits.

One of the key pillars I see for future growth is providing funding to businesses developing green products and services. In the last three years, the amount of green loans and bonds has risen 291%. As it accelerates, thousands of start-ups will require capital to make this transition a reality. Such an opportunity represents the long-tail of trillions of dollars in investment capital. I believe this would have a positive effect on the long-term share price of Barclays.

Given all of the above, together with the sell-off across the broader equities market today, I intend to snap up some more shares.

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.

Andrew Mackie owns shares in Barclays. 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.

More on Investing Articles

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Dividend Shares

2 retirement shares that long-term investors should consider for steady income

Ken Hall takes a look at two big-name retirement shares in the FTSE 100 with market-leading positions and track records…

Read more »

UK money in a Jar on a background
Investing Articles

With a 10.1% yield, should I buy this FTSE 250 income stock?

Our writer looks at an income stock that’s kept its dividend unchanged for five years. But is it high enough…

Read more »

Investing Articles

Up 23% in a month, can this FTSE 100 stock continue to soar?

Airtel Africa's recently been the FTSE 100’s top-performing stock. With huge opportunities for growth ahead, is it set to continue?

Read more »

Investing Articles

£20,000 in savings? Here’s how an investor could use it to target an eventual £980 of passive income each month

Our writer demonstrates how an investor could aim to earn close to £1,000 each month in passive income from a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

£10,000 invested in the S&P 500 at the start of 2025 is now worth…

Since the start of the year, the S&P 500's underperformed the FTSE 100. And Stephen Wright thinks investing in the…

Read more »

Investing Articles

Is this a turning point for the Diageo share price?

The Diageo share price is at an eight-year low. Is this FTSE 100 favourite simply too cheap to ignore? Roland…

Read more »

Investing Articles

As the FTSE 100 hits record highs, should I sell my shares and buy an index fund?

Our writer’s portfolio lagged the FTSE 100 last year, but he’s not giving up on stock-picking and highlights a recent…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Lloyds shares 6 months ago is now worth…

Lloyds shares have performed well over 12 months but have broadly disappointed investors over the long run. Dr James Fox…

Read more »