Why Barclays PLC’s Exciting Investment Plans Should Thrust Earnings Skywards

Today I am looking at why I believe Barclays’ (LSE: BARC) (NYSE: BCS.US) heavy investment in technology should underpin spectacular long-term growth.

Rise of the machines

Still haunted by the consequences of the 2008/2009 banking crisis, Barclays is embarking on a massive cost-cutting initiative to bolster its capital base and create a more streamlined operation. Entitled Transform, the scheme is designed to slash operating expenses to £16.8bn by 2015 by culling thousands of jobs across the business and initiating a host of branch closures.

Barclays is instead focusing on automation to drive growth, and has said that “adopting innovative technology and automated processing” is barclayskey to boosting its profile on the UK high street. And the bank is investing heavily to adapt to changing consumer habits and the explosion in online activity.

The company recently launched its PingIt service — which allows mobile payments to be sent or received using just a phone number — while other measures across the business include expanding the product range and flexibility of its BARX electronic trading platform. And the bank has plenty of other initiatives under its sleeve set for launch across the business.

As well, Barclays has targeted the emerging markets of Africa as a major driver of earnings expansion. Most notably the firm announced plans in late 2012 to merge its operations on the continent with top South African bank Absa, for £1.3bn. The move saw the UK-listed firm raise its stake in the firm to 62.3% from 55.5%, giving Barclays access to more than 14m customers across 10 countries under the newly-branded Barclays Africa Group.

Barclays has been less busy on the M&A front over the past year, but the company has not been shy in flashing the cash to latch onto major growth areas on the continent. Indeed, the company rolled out its Absa Pebble technology which allows point-of-sale payments to be taken by mobile phone. Millions of African customers still do not own bank accounts, so this technology — which Barclays plans to roll out across other markets — could represent a massive game changer.

Earnings explosion on the cards

City analysts expect Barclays’ restructuring plan to thrust earnings higher from this year onwards, with growth to the tune of 67% for 2014 expected to be followed with a further 22% advance next year.

Such projections leave the bank dealing on P/E multiples of 8.3 and 6.8 for 2014 and 2015 respectively, obliterating a forward average of 15.9 for complete banking sector. On top of this, price to earnings to growth (PEG) readouts of 0.1 and 0.3 for these years — well below the bargain benchmark of 1 — illustrates Barclays’ terrific growth prospects relative to current prices.

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Royston does not own shares in Barclays.