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Is it time to buy Barclays plc after FY results?

Is Barclays (LSE: BARC) the FTSE 100’s strongest bank? I reckon it probably is, and Thursday’s full-year results strengthen my opinion. 

Barclays reported a near-trebling of pre-tax profit to £3.2bn in 2016, from £1.1bn the year before, while chief executive Jes Staley lauded the progress the bank has made against its restructuring targets and its efforts to “refocus our business as a transatlantic, consumer, corporate and investment bank, anchored in London and New York“.

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Mr Staley went on to say “We are now just months away from completing the restructuring of Barclays, and I am more optimistic than ever for our prospects in 2017, and beyond“. But shareholders shouldn’t get complacent, because it’s not plain sailing yet.

Mis-selling penalties?

For one thing, the bank is still facing legal action in the US over the alleged mis-selling of mortgage-backed securities in the years leading up to the banking crash — unlike some others, Barclays eschewed a proposed settlement and says it is defending the action. Most observers will probably expect some financial penalty as the outcome — but at least litigation costs were down this year compared to last year.

Then there’s Brexit, and even with the new UK-US axis of focus, Barclays is far from immune to that momentous event. It still has operations in Germany and in Dublin, and we’re really not sure what’s eventually going to happen to those yet — although Mr Staley did suggest to the BBC that Dublin might have to become the headquarters of Barclays’ European business.

Capital position looking good

Still, none of that detracts from Barclays’ current liquidity position and its clearly strengthened structure, as its Common Equity Tier 1 ratio continues to improve. At 12.4% we saw a 100bps boost, and the bank is confident it will be able to achieve a long-term ratio of around 150bps to 200bps above its minimum regulatory requirements.

Risks are reducing too as the sell-off of African and non-core assets is proceeding on target. In particular, the disposal of Barclays’ Africa business saw the sale of the first 12.2% completed in May 2016, and the bank is proceeding with regulatory approval in order to reduce its ownership further.

Barclays non-core risk-weighted assets were reduced by £22bn, and the full disposal is expected to be completed six months ahead of schedule by 30 June 2017.

Whence dividend growth?

A key pivot point is going to be the resumption of dividend growth, with shareholders being allotted the expected 3p per share for the year just ended — after the annual payment was slashed by more than 50%. That’s a modest 1.3% yield on the current share price.

We were told nothing more in Thursday’s results, though analysts are currently predicting a boost to around 7.9p for 2018 as forecasts for earnings growth improve — and the strengthening of Barclays’ capital position will surely lead to speculation that we might even see a rise this year.

Should you buy Barclays shares now? Well, I’m impressed by the no-pussyfooting way Barclays has attacked its problems head-on and by its rampant enthusiasm for getting the job done as quickly as possible. That strengthens my belief that Barclays is Britain’s best managed bank — and with a P/E of only 10 on 2018 forecasts, I still see a solid long-term bargain too.

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

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