The Barclays (LSE:BARC) share price went from £1.46 to £1.63 this week. For a stock that’s up less than 1% over the last five years, that’s quite a sudden turn of events.
The catalyst for the recent surge was the company’s earnings report on Tuesday (20 February). And I think the details from that update make the stock an interesting proposition from an investment perspective.
Earnings
In terms of earnings, the report didn’t look that exciting. The bank’s net interest margin increased from 2.86% in 2022 to 3.98% in 2023 as it (like its peers) benefitted from higher interest rates.
Pre-tax profits were down, though, from £7bn in 2022 to £4.3bn in 2023. And the last three months indicated the macroeconomic environment is becoming less favourable – a risk for investors.
Revenues for the last three months of 2023 came in at £5.6bn – 3% lower than the year before. More strikingly, the company posted a net loss of £111m due in part to £900m in non-cash charges.
Those charges are important though. They’ve been incurred as a result of a restructuring policy that Barclays has been embarking on and it’s this that I think is pushing the share price higher.
Restructuring
The charges are the result of reorganising the bank into five divisions – UK Consumer, US Consumer, UK Corporate, Investment, and Private & Wealth. I think this is good move.
Barclays is unique among UK banks, combining retail banking with a large investment banking outfit. This means it should have operations that do well whether interest rates are high or low.
In restructuring, the company is also hoping to make £2bn in savings by reducing its workforce by around 20%. If it can achieve this, the £900m in charges from this year will be well worth it.
Whether the company can hit its cost reduction targets while remaining competitive remains to be seen. But this probably isn’t even the biggest boost for investors to come out of the week’s update.
Shareholder returns
The most eye-catching part of the Barclays update was its shareholder returns programme. This involves £10bn being used for dividends and share buybacks over the next three years.
During 2023, the bank returned around £3bn to shareholders, so another £10bn over three years isn’t a huge increase. But it’s a lot for a company that began the week with a market cap of £22bn.
The intention is to hold the dividend – which yields just under 5% – flat, while using the rest for share buybacks. I think this is the biggest reason the stock has been climbing this week.
Beyond 2026, things become a bit more uncertain, so there’s a risk for the longer term. It’s fair to say, though, that the company is expecting good things over the medium term.
A dilemma
Even after this week’s rally, I think the promise of a £10bn return over three years still makes the Barclays share price look attractive. This leaves me with a dilemma.
I already have a strong concentration in banks, so buying Barclays shares would further increase that. But I do think the stock looks like great value at today’s prices.
I’m going to take some time to think about this one. It looks like a great opportunity to me, the only question is whether I find space for it.
