Why Barclays PLC Is Down 15% This Year

Barclays PLC (LON:BARC) shareholders have had a tough year, but the bank is moving in the right direction: 2015 could be the turning point, says Roland Head.

| 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.

Barclays (LSE: BARC) (NYSE: BCS.US) shares have fallen by around 15% so far this year, wiping £8bn from the bank’s market capitalisation.

The year started oddly, when Barclays was forced to release various key numbers from its final results early to dampen press speculation. Things became more sinister in June, when allegations of fraud and deceptive practices were made by the New York Attorney General about Barclays’ dark pool trading venue.

The foreign exchange rigging scandal came next, and for reasons that aren’t yet clear, Barclays refused the settlement deal that was accepted by other UK banks in November, in order to negotiate a different deal for itself. This process is still ongoing, and has prolonged the uncertainty surrounding this scandal.

What about results?

Barclays’ results haven’t been too bad this year, and suggest to me that Barclays is making steady progress with its Transform plan.

Profits at Barclays’ personal and corporate banking, Barclaycard and non-core divisions have all risen, while bad debt charges have fallen and operating expenses are lower.

Barclays’ financial strength has also improved: the bank’s Common Equity Tier 1 Ratio (CET1) rose to 10.2% during the third quarter, and Barclays outperformed Royal Bank of Scotland Group and Lloyds Banking Group in this week’s Bank of England stress tests.

The fly in the ointment has been Barclays’ investment bank, which continues to perform poorly, dragging down the bank’s overall returns. However, I believe that the arrival of new chairman John McFarlane in 2015 could be the trigger for change in Barclays’ investment division: Mr McFarlane didn’t hesitate to make sweeping changes following his arrival at Aviva, and I expect the same kind of decisive action at Barclays.

Cheap valuation

Barclays’ net tangible asset value per share rose to 287p in the third quarter, meaning that the bank’s shares currently trade at a 20% discount to their tangible book value.

The bank’s shares trade on a 2015 forecast P/E of just 8.6, and offer a 2015 prospective yield of 4.2%. By any measure of value, Barclays looks cheap. Interestingly, despite its rising dividend, Barclays trades on a lower P/E than non-dividend payers Lloyds and RBS.

Positive outlook

In my view, the arrival of new chairman John McFarlane in spring 2015 should be the final element needed to complete the bank’s turnaround and restore investor confidence.

The bank’s undemanding valuation reduces the risk of holding the shares, and I believe Barclays offers compelling value, and remains a strong buy.

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.

Roland Head owns shares in Aviva and Barclays. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »