On Wednesday, Barclays (LSE: BARC) released pretty horrible first-half figures. The key issue is its increasing exposure to bad debt, as countless UK businesses are struggling and failing.
Barclays set aside an additional £1.6bn in credit impairment charges in Q2. And there’s likely to be more to come in the second half, though the bank expects the amount to fall. The Barclays share price dipped 6% on the day. As I write on Thursday, it’s down another couple of percent on top of that.
The shares had been picking up since their low point in April. But that nascent recovery is now looking like just a brief respite. Fears are growing that we’ll see a longer economic recession than many expect. And I think it’s a very realistic fear.
The chances that we’ll see a double-dip stock market crash seem to be growing every day. Many individual stocks have, though, so far failed to yield to such fears and are holding up.
But the Barclays share price isn’t one of them. After the renewed downturn, Barclays shareholders are now sitting on a 43% loss in 2020. That’s more than double the fall in the FTSE 100, though the index looks like it could be set to enter a new downtrend too.
Second stock market crash?
There’s a possible second stock market slump coming. And there’s further uncertainty over the Barclays share price. So is it time to dump and run?
My view is exactly the opposite, that we’re experiencing an extended buying opportunity. Yes, times are hard for Barclays and for the rest of the banking sector. But I think we need to be able to put things into perspective.
Take that £1.6bn credit impairment, which is admittedly a fair-sized stash of cash. But we’re looking at a company with 2019 revenue of £21.6bn and pre-tax profit of £4.36bn. Suppose impairments double for the full year and wipe out a significant chunk of 2020 profits, and that there are further impairments next year.
It would still be a short-term issue, and won’t come close to seriously damaging Barclays’ liquidity. And, for further comparison, the PPI scandal cost Lloyds around £20bn. That’s what a serious cash hit looks like.
With dividends suspended, Barclays’ capital ratio has actually increased to 14.2%. The Barclays share price is also well below its net tangible asset value. And that’s tangible assets, which are less open to interpretation than total assets.
Barclays share price cheap
Forecasts suggest a big recovery in earnings in 2021, which would drop the Barclays P/E to around nine. And the predicted 2021 dividend would yield 4.3% — not one of the best, but still very comfortable. Now, I don’t put a lot of faith in forecasts right now, and I do think many in the City are a tad too optimistic in light of the current uncertainty.
But even if current forecasts are a little over-egged, I do see a fair bit of safety margin in them. And though I think Barclays could be in for a rougher year in 2021 than many expect, I’m convinced I’m seeing a long-term buy.
The bank is still in very good financial shape and, over the next few years, I expect to see the Barclays share price growing strongly.
