Bad news for shareholders of British bank Barclays (LSE: BARC). The ‘Big Five’ bank released its first-quarter results this morning. Alas, these figures failed to impress investors, as the Barclays share price fell at the market open.
Barclays’ revenues drop, but profits soar
On 19 April, I wrote that Barclays was perhaps on a knife-edge. Shareholders — and the Barclays share price — would welcome a boost to investment-banking profits. Also, any write-back of 2020’s loan-loss reserves would strengthen the bank’s bottom line. However, I worried that Barclays faces a lot of uncertain risks that could impact on its performance. But I decided that the shares were worth buying for the long term.
Sadly, Barclays’ latest results revealed that it didn’t share the bumper boost to profits enjoyed by big US banks. Revenue at Barclays slipped 6% to £5.9bn, but at least that was above the consensus forecast of £5.6bn. One reason for this was a lower net interest margin (NIM, which is the spread between lending and savings rates). Barclays’ NIM fell to 2.54% in Q1 2021, versus 2.91% a year ago. This dragged down net interest income, as did weaker lending at the group’s UK arm. Clearly, these two setbacks are not good news for the Barclays share price.
Then again, there were things to celebrate from Barclays. Profit before tax almost tripled (+162.8%), surging to £2.4bn from £913m a year earlier. Basic earnings per share (EPS) also skyrocketed (+182.9%), leaping to 9.9p from 3.5p in Q1 2020. But one disappointment for shareholders was a further £55m in credit-impairment charges. Some investors had hoped Barclays would follow other UK banks in releasing bad-debt reserves from 2020. But the £4.8bn it set aside in 2020 remained untouched, which acted as a drag on the Barclays share price.
The Barclays share price tumbles
As I write on Friday morning, the Barclays share price is 178.34p, down 10.38p (5.5%) on Thursday’s close. That’s quite a slap from Mr Market. But Barclays shares have been a big winner over the past three, six and 12 months, as this table shows:
However, for the Barclays share price to continue this winning streak, the bank needs demand for credit to rise. When lockdown restrictions are finally withdrawn, will consumers return to spending on credit cards and taking out personal loans? If so, this would greatly benefit Barclaycard, the UK’s biggest credit card with around 10m cardholders. Then again, the short-term boost to trading and advisory profits is unlikely to last, which could depress future earnings from Barclays’ investment bank.
Would I buy Barclays today?
It’s clear that Barclays faces headwinds from lower interest rates, falling margins and subdued borrowing. However, I see a potentially robust £32bn business just waiting to rebound when the economy eventually takes off. What’s more, Barclays has a strong balance sheet, with a Common Equity Tier 1 (CET1) ratio of 14.6%, up from 13.1% a year ago. Also, tangible net asset value (TNAV) is 267p a share, which is almost half (+49.7%) above the current Barclays share price. Yes, the full-year dividend of 3p equates to a dividend yield of just 1.7%, but it shouldn’t be so low for very long. On balance, I’d be happy to buy Barclays shares at today’s reduced price.
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Cliffdarcy 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.