The Barclays PLC Rights Issue Presents A Superb Buying Opportunity

Here’s why I think the recent announcement of a £5.8bn rights issue by Barclays PLC (LON: BARC) is great news for investors.

| 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.

The past week has seen the biggest rights issue by a UK listed company since 2009 announced by Barclays (LSE: BARC) (NYSE: BCS.US). The total amount it hopes to raise is £5.8bn and will consist of a 1 for 4 rights issue at 185p to current shareholders.

The main reason for the rights issue is a capital shortfall: a 3% capital ratio is now required after European Union legislation and Barclays’ capital ratio is only 2.2%. In addition to the rights issue, it expects to raise £2bn in hybrid debt securities and shrink the balance sheet by around 5%.

Although shares experienced a mild correction when the news emerged, the overall feeling among the financial press seems to be one of apathy. However, I think it’s great news and here’s why.

Clearly, there are issues with Barclays’ balance sheet that need to be fixed. So, why not tackle them head on, raise capital from shareholders and move forward as a stronger and more stable business? Pretending there aren’t any problems or finding ways to get round them is not only risky, but means management devotes crucial time that could better be spent considering how to make the company profitable.

Indeed, this is a bank that had made a profit throughout the credit crunch until it made a loss last year. It has outperformed many of its UK peers over that period and so, with a relatively new CEO now ready to assert himself, it is a good time to fix things that need fixing and make progress.

Of course, a major attraction for shareholders remains the potential for a sizeable yield. Although shares currently yield just 2.4%, this is expected to increase significantly over the next few years as the company has promised to now pay out between 40% and 50% of earnings each year as a dividend. Analysts forecast that dividends per share will be 15p in 2015. This would equate to a yield of over 5% at current prices.

With an adjusted price-to-earnings (P/E) ratio of 8.3, Barclays compares favourably to the financials industry group, which has a P/E of 17.8. A low P/E plus a sizeable potential future yield means ‘buy’ in my book.

Of course, you may be looking for other ideas in the FTSE 100 and, if you are, I would recommend this exclusive wealth report which reviews five particularly attractive possibilities.

All five blue chips offer a mix of robust prospects, illustrious histories and dependable dividends, and have just been declared by The Motley Fool as “5 Shares You Can Retire On“.

Simply click here for the report — it’s completely free!

> Peter owns shares in Barclays.

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.

More on Investing Articles

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

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »