Is Barclays plc Set For Electrifying Earnings Growth In 2014?

Today I am looking at British banking behemoth Barclays’ (LSE: BARC) (NYSE: BCS.US) earnings outlook for 2014.

Transform ready to deliver the goods

Barclays continues to make terrific progress in its bid to build a more efficient earnings-generating machine. The bank’s Transform package is anticipated to deliver stunning returns from next year onwards, underpinned by severe cost reductions — the company aims to strip out £1.7bn in net operating expenses by 2015 — and restoring its reputation as Britain’s ‘Go To’ bank, helped by its drive towards increased automation.

Indeed, Barclays continues to roll out new initiatives, and to respond to changes in the way British customers do their banking, as part of this expansive restructuring drive to grab back customers. Just last month the bank announced plans to open four new mini-branches inside Asda supermarkets whilst closing a gaggle of nearby branches. 

These moves seem to be striking a chord with customers, and the firm saw UK retail profits — excluding the cost of Transform — advance 9%, to £1.04bn, during January-September. The gargantuan costs of the scheme are certainly a concern in the near-term, the company shelling out £741m during the nine-month period, although the manoeuvres are essential for earnings growth in coming years.

But even though its European operations continue to drag badly — excluding Transform costs, losses on the continent rose to £458m from £229m during the first nine months — its UK high street business is not the only area of solid growth. Profits at Barclaycard edged 3% higher to £1.18bn during January-September, while Corporate Banking profits surged 83% to £732m.

However, the bank noted that ongoing uncertainty over the state of the global economy — particularly over the timing and extent of quantitative easing scalebacks in the US — has weighed heavily in recent months. These drove profits from its critical Investment Bank 6% lower during the period to £3.03bn, and enduring worries here as we move into 2014 could weigh heavily again.

As well, the bank still faces a multitude of ongoing legal battles going forwards, from the mis-selling of payment protection insurance (PPI) through to the fixing of LIBOR and sale of related products. This week Barclays launched an appeal in the court against the Federal Energy Regulatory Commission (FERC), which imposed fines of $488m relating to manipulation of the electricity market between 2006 and 2008.

The City expects Barclays to print a 26% slide in earnings this year, to 23.6p per share, before rebounding back by the same percentage in 2014 to 29.6p. Such projections make Barclays a snip for the coming year, dealing on a sub-10 P/E rating — territory which is generally regarding as exceptional value — at 8.5.

These sums make it the UK’s cheapest listed bank, comfortably surpassing its closest rivals Standard Chartered and HSBC Holdings which trade on corresponding readouts of 9.3 and 10.3 respectively. Although fractures in the global economy could weigh on Barclays in 2014 and beyond, I believe that the firm’s cross-divisional strength — not to mention exceptional progress of its restructuring package — make it a standout pick in the banking sector, particularly at current prices.

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> Royston does not own shares in any of the companies mentioned in this article.