The Barclays (LSE: BARC) share price is enjoying its day in the sun, jumping almost 7% after it posted a better-than-expected £1.1bn profit for the third quarter. The big banks have not enjoyed much good news lately, so relish this moment.
On February 2007, the Barclays share price hit its all-time high of 790p. Today, it stands at 111p, as the financial crisis and now Covid-19 have done their worst. Yet many will be tempted by today’s low valuation, and so am I. This could be a good time to pick up its stock, ahead of a recovery.
Despite the pandemic, Barclays has now delivered a year-to-date group profit before tax of £2.4bn. That is down 27% from last year’s £3.3bn, although the actual fall is even more painful, because Q3 last year saw a £1.4bn PPI impairment charge.
FTSE 100 bank opportunity
Third-quarter UK income fell 16% to £1.6bn year-on-year, but the good news is that it was 6% higher than in the second quarter.
If you think banking stocks have been oversold and could rebound when the pandemic eases, then check out the Barclays share price. It now trades at a mere 7.29 times earnings, with a price-to-book value of just 0.3. That is deep into bargain territory. Then again, it has looked like a bargain before, only to fall further.
The UK economy is in for a difficult winter, as Covid-19 wreaks political and economic havoc. Low interest rates are squeezing net interest margins, the difference between what banks charge to lend money and pay to savers, and this could last for years. If the Bank of England introduces negative interest rates, as threatened, it could get worse.
Customer borrowing is falling and lower interest rates are reducing loan profitability, both for high street and commercial lending. Today’s figures weren’t as bad as expected on that front, although Barclays suspects many defaults have been pushed back by government support.
I’d buy the Barclays share price today
The bank’s investment banking arm has been boosted from the pandemic. Advice fee income has jumped, as companies rush to place rights issues and raise funds to protect their balance sheets. Stock market volatility has also boosted trader activity. Barclays International’s income is up 1% year-on-year, to £3.8bn. That’s ironic, given activist investor Edward Bramson’s push for Barclays to divest its business in this area. Management looks vindicated for holding firm.
Barclays axed its dividend along with all the other FTSE 100 banks at the start of the pandemic, but the board will review its decision at the end of the financial year. A restored payout would give the Barclays share price a much-needed boost. However, political factors also come into play. The Bank of England might decide that banks restarting dividends will not be a good look if the economy is tanking.
The Barclays share price looks cheap, despite today’s jump. On a five or 10-year view, it looks a buy to me.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.