The Barclays (LSE: BARC) share price enjoyed an uplift on Wednesday, after it released its first-half results. Barclays shares gained 3.38p (2%) to close at 172.76p. And though the shares were higher earlier this year, they’ve still risen strongly in 2021 and are up 64.5% over 12 months.
Robust results raise the share price
As UK vaccination coverage rises, investors become more relaxed about Covid-19 infections. Also, consumers are returning to work and spending more cash. Thus, a solid set of results lifted the Barclays share price yesterday. In H1 of FY21, Barclays delivered a pre-tax profit close to £5bn, versus under £1.3bn in H1 of FY20. That’s an increase of 291.4% — almost quadruple the profit in the disastrous first half of 2020. This generated earnings per share (EPS) of 22.2p, versus just 4p in a year earlier. Also, Barclays’ return on capital employed (ROCE) surged to 16.4% this time, against a mere 2.9% a year ago.
The bank also reported Q2 net income of £2.1bn, massively ahead of £90m a year ago. This was 50% ahead of analysts’ forecasts of £1.4bn. The main reason for this profit boost is the global economic rebound. This allowed the bank to drastically reduce the reserves set aside to meet loan losses. Barclays lowered its provisions against credit impairments by £797m — almost 15 times the £55m forecasters expected. This dropped straight into the bottom line, helping to drive up for the Barclays share price.
A £500m share buyback and £340m dividend
Thanks to these markedly improved results, Barclays is ramping up its shareholder returns. First, the bank unveiled a £500m share-buyback programme. This will reduce the number of shares in circulation and add support to the Barclays share price. Also, it announced a half-year cash dividend of 2p a share, distributing a total of £340m across 17bn shares. Shareholders should welcome this cash return after UK banks cancelled their dividends in spring 2020.
Another potential bonus for Barclays shareholders comes from unreleased reserves against loan losses. The bank — market value £29.4bn — still has £1.9bn of pandemic-related credit provisions in reserve. If the UK economy continues to improve after government wage-support programmes end, then more of this pot could be released in 2021/22. Again, this would be good news for the Barclays share price.
I’d buy BARC today
Right now, Barclays is in a sweet spot. As the UK economy booms and consumers resume spending and borrowing, the bank’s prospects are tied to this ongoing recovery. The Barclays share price is up over 26p — or 17.8% — so far in 2021. This is more than double the FTSE 100 index’s 8.6% gain this calendar year. Yet BARC stock stood 9.5% higher three months ago, hitting its 2021 closing peak of 189.18p on 16 April.
I don’t own BARC stock today. However, the current Barclays share price looks attractive to me. After all, the stock trades on a price-to-earnings ratio of seven, for an earnings yield of 14.3%. The dividend yield of 1.7% a year is slim, but has the potential to double or even triple from here. Then again, the group’s income took a hit from a drop of 10% in the US dollar against the pound. Also, Barclays’ loan book is shrinking, down 1.8% to £346bn in the year to end-June — bad news for interest income. Nevertheless, despite these weaknesses, I would happily buy BARC stock today as a bet on future economic growth.
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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.