3 Buffett Value Measures That Make Barclays PLC A Buy


Barclays (LSE: BARC) (NYSE: BCS.US) reported its final results for 2013 earlier this month, but the financial results of a bank can be very hard for private investors to analyse.

After all, how much do you really understand about ‘CRD IV risk weighted assets‘, or ‘PRA adjustments to CET1 capital‘?

Frankly, you’d have to be a serious banking expert to draw any meaningful conclusions from this kind of stuff. Luckily, we don’t need to.

3 Buffett buy signals

Barclays is firmly out of favour at the moment. The firm’s shares are down by nearly 7% this year, and are trading close to their 52-week low.

However, as value investors, this is exactly what we are looking for — a successful business that is out of favour.

If billionaire value investing legend Warren Buffett was based in the UK, I reckon he might now be tempted to take a closer look at Barclays, as the bank currently exhibits three classic value investing buy signals:

1. Discount to book value

Barclays shares currently trade at a 23% discount to book value, and a 10.6% discount to tangible book value — a key value investing metric which indicates that Barclays’ theoretical liquidation value should be greater than its current share price.

Although investors may still be suspicious of the quality of some of Barclays’s assets, I think a more likely explanation for the discount is that the current dividend yield is too low to justify a higher share price.

2. Rising dividend yield

Barclays’ decision to pay staff bonuses three times greater than the total dividend payout last year was rightly criticised, but I don’t think they will make the same mistake this year, and neither does the City.

The latest consensus forecasts suggest that Barclays’ full-year dividend will rise to 9.5p in 2014 — a 46% increase that provides a prospective yield of 3.8%, significantly above the FTSE 100 average of 2.8%.

3. Low P/E

Barclays’ 2013 results place it on a relatively pricey P/E of 15.1. However, if the costs of the bank’s ‘Transform’ programme are stripped out, Barclays’ 2013 P/E falls to just 10.5.

Current consensus forecasts for 2014 suggest that Barclays’ earnings per share will rise to 28.7p this year, placing it on a very undemanding forecast P/E of 8.8 — just over half the FTSE 100 average.

In my view, Barclays looks very cheap at the moment, and I rate the bank as a long-term value buy.

Digging deeper on Barclays

Of course, these three indicators aren't the only metrics that matter. In "The Fool's Guide To Investing In Banks", the Motley Fool's banking expert, Nate Weisshaar, compares all five UK banks in more detail, using six of the most important banking valuation metrics.

The results are very revealing, and suggested to me that Barclays could offer hidden long-term upside. Ultimately, however, the decision is yours -- to get your FREE copy of this essential report, simply click here now.

Roland does not own shares in Barclays.