The Barclays (LSE: BARC) share price has been on a tear since February. And it got a further 5% boost in early trading on 25 April, on the back of Q1 figures.
The shares have now climbed 30% since the start of 2024. And they’re back in positive territory over five years again, up 24%.
Profit down
Profit before tax fell to £2.3bn in the quarter, from £2.6bn a year ago. That’s a drop of 11.5%, which the board puts down to “adverse product dynamics in deposits and mortgages“.
Mortgage pain, as we expected, is hitting the banks.
It comes a day after Lloyds Banking Group posted a 25% drop in Q1 profit. As it’s the UK’s biggest mortgage lender, that was no surprise.
But the greater pressure on Lloyds means its share price hasn’t soared in 2024 the same way that Barclays’ has. Still, Lloyds shares are up 8% year-to-date, at close to twice the FTSE 100‘s gain.
Liquidity
As we wait for the Bank of England to ease the squeeze, eyes will be turned towards liquidity.
Barclays posted a return on tanglible equity (RoTE) of 12.3% for the quarter. That’s down, but it seems plenty good enough to me at this stage.
We also saw a CET1 ratio of 13.5%, which is bang in the middle of the target range of 13%-14%. I rate that as strong.
The rest of the year still looks tough. Barclays targets a full-year RoTE of “greater than 10%“, down from the first quarter. But if that’s the worst it gets, we shouldn’t have to worry.
Bank confidence
By 2026, the board hopes to get RoTE back above 12%. And we sould see the CET1 steady in that 13%-14% range.
And key to me as a dividend investor, we could see a big pile of cash returned to shareholders between now and then.
The update spoke of a “plan to return at least £10bn of capital to shareholders between 2024 and 2026, through dividends and share buybacks, with a continued preference for buybacks“.
No more cheap shares?
Does this mark the start of the great UK bank stock recovery, for which patient investors have been waiting for years?
Hmm, if anyone thinks we’ll see a serious upwards re-rating in valuations, well… I think that might still be a bit premature.
We’ve had plenty of false starts since the big crash of 2008. And we still face high interest rates and a very shaky world economy.
So, I reckon Barclays shares, along with the rest of the UK bank sector, could be erratic for a while yet.
Bargains
But that’s good, as I reckon we should still see bank shares trading at modest valuations. Investor confidence does seem to be returning though — and the FTSE 100 is hitting new highs.
But I just don’t see the market’s earlier reckless love affair with banks returning.
Yet I do see a time of fair but attractive bank stock prices, and solid long-term dividend yields. Wouldn’t that be lovely?
