Why the Barclays share price rose 11.5% this week

News of restructuring, earnings, and share buybacks has caused the Barclays share price to rise sharply. But is the stock still a bargain?

| More on:
Happy couple showing relief at news

Image source: Getty Images

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.

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.

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc. 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

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Would a stock market crash matter?

Christopher Ruane explains why a stock market crash could turn out to be positive, not negative, for a private investor…

Read more »

Investing Articles

Has the Rolls-Royce share price peaked?

After a strong 2023 performance and (so far) in 2024, the Rolls-Royce share price has stuttered in recent days. Christopher…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Turning a £20k ISA into a £13,900 yearly second income? It’s possible!

By investing a £20k ISA now using certain basic principles, our writer thinks he could set up a second income…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With no savings, I’d follow Warren Buffett’s number one rule to build wealth

Can this one piece of Warren Buffett wisdom really help our writer as he aims to build wealth in the…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

A second income of £1k a month from just £10 a day! How would I do that?

Mark David Hartley considers how to build a second income stream starting from just £10 a day. Is £1,000 a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Turn £8,900 into a £24k annual passive income? Here’s how!

Christopher Ruane applies some investing lessons from billionaire Warren Buffett when explaining how he'd aim to earn sizeable passive income…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »