The usual approach is to compare firms’ new numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. It can also be useful to consider whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. Analysts in the UK don’t always publish earnings previews for quarterly or half-year periods, but given their popularity, the shares covered below are exceptions. All of them have financial years that end in December.

Rio Tinto (H1 Earnings)

Rio Tinto (LSE: RIO) is an Anglo-Australian multinational company. It’s the world’s second-largest metals and mining corporation. The FTSE 100 firm’s main export is iron ore. Rio is set to reveal its H1 numbers for its six months performance ending June on 27 July.

Its earnings preview seems to indicate a slowdown in both its top and bottom lines. This is most likely due to the perpetual lockdowns in China that have been limiting construction activity. China is the group’s biggest customer, hence the gloomy forecasts. That being said, a sudden change in health policy in China could see Rio edge closer to its FY21 figures and could spell a healthy jump in its stock.

Barclays (Q2 Trading Update)

Barclays (LSE: BARC) is one of the UK’s biggest banks. It operates in many countries across the globe, and also operates an investment banking division. The bank is expected to disclose its Q2 figures for its three-month performance ending June on 28 July.

Analysts covering Barclays are expecting the bank to improve on its total income marginally this half, on a year-on-year basis. However, its most recent earnings per share estimate has been downgraded from 7.6p in the last week. The increase to its top line is most likely due to the effects of higher interest rates. Nonetheless, a decrease in investment banking activity from the current bear market is going to cause its bottom line to suffer. But if the dual-listed stock surprises investors with better than expected figures, a rally could be a possibility.

NatWest (H1 Earnings)

NatWest (LSE: NWG) is another UK bank reporting results this week. The group operates a wide variety of banking brands, offering personal and business banking, private banking, insurance, and corporate finance. It’s scheduled to unveil its H1 earnings for its six months performance ending June on 29 July.

Just as is the case with its sector peer, analysts are expecting the same trend. Alongside that, investors in its shares and the wider stock market will be paying attention to its remediation figure and number of late-stage loans to determine whether the UK is heading for a recession. The former is essentially the amount of money allocated as a buffer to cover potential defaults from customers.

The post Earnings preview: Rio Tinto, Barclays, NatWest appeared first on The Motley Fool UK.

The ripple effect

The problems Barclays are facing today really began in 2017. Back then, the US Securities and Exchange Commission (SEC) found the bank guilty of overcharging thousands of customers. As a result, it fined Barclays $97m. This was a mere drop in its earnings ocean, so it paid the fine without any issues.

Fast forward to 2022 and Barclays’ drop has now become a much bigger ripple. Prior to 2017, Barclays could trade exchange traded notes (ETNs — A form of securities) without thinking twice about certain limits. However, this privilege was revoked as a result of the aforementioned fine. So, when Barclays filed for a new ‘shelf registration’ limit in 2019, it didn’t qualify for the automatic limit increase. Essentially, Barclays now had limits on the number of securities it could sell.

Out of stock

What does all that mean? Well, ETNs are a form of securities as mentioned. These notes typically offer to pay a return based on the performance of an underlying asset, like an ETF. The only difference is that unlike ETFs, ETNs are not backed by assets, and cannot be liquidated.

And what does this have to do with Barclays? Well, the bank realised that it blew past its shelf registration limit by a whopping $15.2bn last month. Consequently, it suspended sales of notes that tracked the VIX index and crude oil. Unfortunately, the damage doesn’t stop there. The SEC ruled that Barclays has to purchase ETNs at the original price of issue for every note that was sold past its registration limit. This means that if new notes for the VIX were issued in March 2020, Barclays would have to buy back these for a whopping $242 per note. That is almost 10 times their current value! Thus, it now has a $600m loss in its accounting books.

Having said that, its $1bn stock buyback has also been delayed. I would argue that the delay of its share buyback programme serves as a bigger catalyst to the share price dropping than the ETN issue.

Buy the dip?

With a price-to-earnings ratio of four, do I see Barclays as a bargain? After all, the $600m in losses is less than 2% of its market cap so it shouldn’t hurt its margins too badly. The Barclays share price does have tailwinds with rising interest rates too. However, it’s worth noting that borrowing, from which Barclays earns the bulk of its revenue, could slow down if central banks hike interest rates too sharply. With earnings season coming up, I will be monitoring the results and guidance of big banks to determine the economic outlook. February’s GDP numbers show a sharp decline in economic growth. So I will tread with caution before I consider adding Barclays to my portfolio and am not a buyer today.

The post Here’s why the Barclays share price is down 25% appeared first on The Motley Fool UK.

The post Mark Carney’s Rate Rise Talk Is Music To The Ears Of Royal Bank of Scotland Group plc & Barclays plc appeared first on The Motley Fool UK.

I lost faith in March when CEO Antony Jenkins announced that he had run out of patience with the investment bank. I thought investors would eventually lose patience with him, but there would be much re-strategising and treading water in the meantime.

Mr Jenkins seemed a safe — and saintly — pair of hands when the bank was mired in multiple scandals. However, lacking the gall to either bring the American investment bankers to heel or spin off the investment bank wholesale, he resorted to salami-slicing it in the most value-destructive fashion imaginable.

I was premature in my analysis: incoming chairman John McFarlane lost no time ousting Mr Jenkins. So how will the latest management changes play out for investors?

Mack the Knife

Mr McFarlane installing himself as executive chairman is welcome news, certainly if he repeats the fantastic performance he pulled off in similar circumstances at insurer Aviva. Expect a forensic business-unit-by-business-unit strategic analysis, followed by ruthless disposal of ill-fitting units and a slash and burn campaign on costs.

True, Mr Jenkins had not one but two bites at the strategic review cherry and Project Transform was eminently sensible, but paraphrasing Barclays’ own announcements, he ‘lacked the skillset’ to do it fast (or effectively) enough.

It may not be much fun to work for a man whose nickname is ‘Mack the Knife’, but Mr McFarlane appears to have the ability to push strategic decisions through the treacle of middle management whose main raison d’etre in large organisations such as Barclays and Aviva is to preserve their own jobs and fiefdoms. Looking at the way Mr Jenkins was ousted — with deputy chairman Sir Mike Rake presented as having done the dirty deed — I suspect ‘MacHiavelli’ might actually be a better nickname for the new chairman.

Heavy lifting

So, as at Aviva, Mr McFarlane is likely to do the heavy lifting of re-positioning, and then install a competent CEO whose emphasis will be on implementation. That puts current finance director Tushar Morzaria in a good place to step up. With an investment banking background, he might have been the man to face up to the bigwigs of New York, but that didn’t work while he was in the number two slot.

Whoever Mr MacFarlane eventually chooses, it’s likely to be a strong leader who executes rather than debates. One of the most energy-sapping things in large companies is when senior management are constantly questioning and re-visiting strategy, which seems to have been the case under Mr Jenkins.

Indeed if a report in the Financial Times is to be believed, it was an argument over the future of the investment bank between Mr Jenkins and investment bank head Tom King that was the immediate catalyst for Mr Jenkins’ departure, with Mr McFarlane and Sir Mike siding with Mr King.

Sans the saint, Barclays’ investment bank might be viewed as more than just a PR headache. It generates an appallingly low return on capital but it needs fixing, not death by a thousand cuts.

Exit Sir Mike

The bungling of Sir Mike’s hasty departure is illuminating. It’s no surprise that a forceful executive chairman and a forceful deputy chairman (who missed out twice on the top job himself) decided they wouldn’t make comfortable boardroom neighbours. But after the news broke Barclays was forced to stress that Sir Mike would remain until a new CEO is installed. It seems managers at the Prudential Regulatory Authority were uncomfortable with Mr McFarlane ruling the roost with no restraining influences — they have read their Machiavelli, too.

Meanwhile the bank’s shares remain cheap, trading at a 10% discount to tangible net worth. Successful turnarounds need two things: a good underlying business, and good management. If Barclays’ new leadership can get the franchise working again, that share price discount should go to a premium.

The post Management Changes Make Barclays PLC Investible Again appeared first on The Motley Fool UK.

Restructuring ticking along nicely

Barclays’ Transform package, introduced back in early 2013 in a bid to erase the excesses of the Bob Diamond regime, has delivered tremendous gains across the business. Of course the programme was rolled to improve the bank’s battered reputation as much as deliver tangible gains, but it cannot be denied that costs continue to come down at a colossal rate — the firm’s latest financials showed total operating expenses slipped an extra 7% in January-March, to £4.1bn.

Not only has Barclays’ capital ratio benefited as a result, but the moves to slash head counts and branches has also supercharged the bank’s moves towards automation. With banking customers increasingly abandoning branch visits in favour of internet banking, the massive investment in its internet operations — not to mention championing ‘contactless’ payment hardware — is bound to pay off in attracting tech-savvy customers in the coming years.

Trouble at the top

Still, the unexpected booting of chief executive Antony Jenkins last week has raised questions over the future direction of the firm. Indeed, reports that the former bank chief’s vision of a risk-reduced, retail-focussed entity came under scrutiny from chairman John McFarlane suggest that the bank is undergoing a period of significant soul-searching over where Barclays sees itself in the coming years.

This boardroom intrigue was given fresh fuel today with news that McFarlane’s deputy Sir Michael Rake was falling on his sword, bringing to an end his seven-year tenure at the bank. Many have speculated that Jenkins’ sacking could lead to resuscitating Barclays’ Investment Bank in a bid to give the share price a shot in the arm. Regardless, McFarlane’s period at the helm — a role that could last until the end of the year — could lead to a very different future for the bank, for good or for bad.

Emerging markets promise big riches

Helped by an improving British economy, Barclays has enjoyed solid revenues growth in recent times. Core income advanced 2% in January-March to £6.4bn, helped by a slight uptick in Personal and Corporate Banking to £2.2bn and a more impressive 9% rise, to £1.1bn, at Barclaycard.

But investors should not overlook the huge potential of its Africa Banking division, and revenues here leapt 8% in the first quarter to £948m. This unit is now responsible for 16% of Barclays’ adjusted pre-tax profit, edging from 13% at the same point in 2014 and which I expect to continue heading higher — the firm is ramping up its licence applications on the continent to improve its exposure to these increasingly-populous, and crucially wealthy, regions.

Charges chugging higher

However, one major red mark against investing in Barclays is the uncertainty created by the ever-growing legal bill. The bank had to bang away another £150m during January-March in order to cover off PPI-related claims — taking the total put aside to a colossal £5.4bn — and added to the £800m charge chalked up as a result of previous manipulation of the forex markets.

Barclays also faces billions more in costs over the next few years related to the mis-selling of interest-rate hedging products, while it is also being dragged through the courts in New York concerning allegations of giving traders an advantage whilst using its “dark pool” trading platform. Despite Barclays’ very public attempts to put the past behind it, the costs of these previous misdeeds could remain a long-standing millstone for the balance sheet.

The post Why You Should — And Shouldn’t — Invest In Barclays PLC appeared first on The Motley Fool UK.

However, this uncertainty and understandable question marks appear to be priced in to Barclays’ share price. Certainly, the apparent end of the Greek debt crisis is good for investor sentiment in the short run, but in the long run Barclays appears to offer substantial rerating potential. For example, it trades on a forward price to earnings (P/E) ratio of just 9.7 and this indicates that its shares are very cheap and also price in the uncertainty that is set to increase in the coming months.

Furthermore, Barclays is a hugely profitable, well-run bank that is not enduring the challenges that many of its competitors face. For example, it is not overly exposed to one particular, struggling region and has an efficient business model that is not experiencing spiralling costs. In addition, its bottom line is set to grow at a double-digit rate per annum over the next few years.

Similarly, challenger bank, Shawbrook (LSE: SHAW), is also priced to sell at the moment. It trades on a forward P/E ratio of just 10.8 which, when you consider that its financial performance has been relatively impressive, appears to be a low price to pay.

Of course, the real potential for investors in Shawbrook is with regard to its income prospects. While it is set to yield just 1.1% next year, Shawbrook is expected to pay out just 12% of profit as a dividend in 2016. That’s exceptionally low and, in fact, if it were to pay out a still very affordable 50% of profit as a dividend, it would equate to a yield of 4.6%. As such, it could become a superb income play – especially if it can continue to post strong profit growth.

Meanwhile, wealth management company, Brewin Dolphin (LSE: BRW), has an excellent track record of growth. It has produced earnings growth in each of the last five years, with it averaging 10% per annum during the period. And, looking ahead, more growth is on the horizon, with Brewin Dolphin set to benefit from an improving UK economy and moderately high FTSE 100 to post growth of 11% this year and 13% next year.

Despite this excellent growth profile, Brewin Dolphin still offers good value for money. Evidence of this can be seen in its price to earnings growth (PEG) ratio of just 1.1, which indicates that it offers growth at a very reasonable price. And, with Brewin Dolphin set to yield as much as 4.4% next year, it could prove to be a top notch income play, too.

The post 3 Finance Stocks Set To Soar: Barclays PLC, Shawbrook Group PLC And Brewin Dolphin Holdings plc appeared first on The Motley Fool UK.

Cyclical recovery

The newswires have it that troubled banking business Barclays (LSE: BARC) seems set to continue shrinking its investment operations, despite the ousting of the firm’s hatchet-wielding chief executive last week.

That strikes me as a good thing for those invested in Barclays. Investment banking activities can deliver the big bucks when things ‘click’, but when they don’t such highly geared punting can stuff up overall profitability, as we’ve seen lately with the firm.

Since mid 2014, Barclays’ share price crept up around 30%. However, even as the firm posts double-digit growth in earnings I’m still not expecting double-digit valuation multiples. An out and out cyclical firm like this, with recovering profits, doesn’t convince me that it has a growth ‘story’. A thirty percent gain over a year looks attractive. If I held the shares, I think I’d be looking for the exit door.

Slight expectations

Yesterday, Carillion (LSE: CLLN) told us it’s trading in line with expectations. According to City analysts following the firm that means a 1% decline in earnings this year followed by a 4% uplift during 2016.

That’s worrying. Carillion is another cyclical firm, this time operating as a support services company and construction contractor with many public/private partnership projects. If the firm isn’t flying now, when the economic sun is shining, when will it?

Carillion’s share price made good progress over the last few years — sideways! The company sports a tempting-looking 5.2% forward yield, but given the cyclical risks involved, I don’t want it.

I’m sure Carillion does a good job with the services it provides and we are all better off because of the companies that roll up their sleeves to make sure the UK thrives. However, I question whether such firms have utility as long-term investment vehicles. Short term, cyclical enterprises like Carillion can provide us with a decent punt on the up-leg of a macro cycle, but that trade finished as long ago as early 2011 for the current undulation, I reckon. Everything since is just ‘noise’!

Growth (oh yes!)

Specialist healthcare company BTG (LSE: BTG) updated the market today saying the business made a good start to the current financial year with overall trading in line with expectations. The City braces reckon that means the firm is on target to grow earnings 27% and they’ve pencilled in a further 41% uplift for next financial year.

That’s a cracking rate of growth and the firm reports that all its business lines are going well. In particular, the directors have high hopes for a product called Varithena, which the company describes as polidocanol injectable foam. In the US, a controlled launch is underway and BTG expects to take around two years from the first commercial sales in August 2014 to achieve widespread adoption and reordering of Varithena by physicians, and to establish a smooth reimbursement process from the American healthcare insurance sector.

With the directors’ strong growth expectations for the financial year starting in April 2016, Varithena looks like an exciting growth development for BTG shareholders.

Although BTG’s business is difficult to understand and lacks earnings visibility, it’s hard to ignore the growth numbers. In fact, I liked them so much I bought the company (or a tiny little slice of it, at least!).

The post Why BTG plc Trounces Barclays PLC And Carillion plc On Growth appeared first on The Motley Fool UK.

I’m paraphrasing slightly, but Mr Buffett’s point was that it’s less risky to buy firms with good fundamentals than to pin your hopes on difficult turnaround situations.

It’s a good principle, but as with any rule, there are times when it’s worth questioning.

In my own portfolio, I believe recent boardroom changes could make a big difference at both Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) and Barclays (LSE: BARC) (NYSE: BCS.US).

Barclays

The sudden departure of Barclays’ chief executive Antony Jenkins has come sooner than expected, but is not a surprise.

Barclays’ new chairman, John McFarlane, is known as ‘Mac the knife’ for good reason.

On 17 July, after less than three months in the role of non-executive chairman, Mr McFarlane will become executive chairman of Barclays — effectively both chairman and chief executive. He will be in charge of all aspects of the bank’s strategy and operations.

Shares in Barclays have risen by 4% since the news became public.

The City has high hopes that Mr McFarlane will be able to repeat the successes of his time at insurer Aviva. In less than three years, Mr McFarlane presided over a 95% rise in Aviva’s share price, thanks to a ruthlessly effective turnaround plan (and a new chief executive).

Mr McFarlane delivered similar results in his previous role as chief executive of Australia and New Zealand Banking Group Limited.

Many investors, including me, bought shares in Barclays for their deep discount to book value and low valuation relative to historic earnings.

We’ll now have to wait to see if Mr McFarlane’s arrival is the catalyst needed to complete the bank’s recovery.

Tesco

Tesco’s problems have been well documented. Yet the firm remains the UK’s largest supermarket, with 28.6% of the grocery market. That’s more than Wm Morrison Supermarkets and J Sainsbury combined.

Tesco has both a new chairman, John Allan, and a newish chief executive, Dave Lewis. Mr Lewis has a sterling track record from his time as a product chief at Unilever, but it’s Mr Allan I want to focus on here.

His most recent role was as chairman of Dixons Carphone, where he oversaw the merger between Dixons and Carphone Warehouse. Shares in the newly-merged company have risen by 32% since the merger completed, in August 2014.

Earlier in his career, Mr Allan was chief executive of logistics firms Ocean Group and then of Exel plc, which he created by merging Ocean with NFC in 2000. Exel was then sold to Deutsche Post in 2005. Mr Allan clearly has a track record of transforming large, manpower-intensive organisations.

Tesco shares currently trade on a 2015/16 forecast P/E of 23, and offer a forecast yield of less than 1%.

Net debt of £9.9bn is far too high.

On the face of it, this isn’t an attractive prospect.

However, I doubt that Mr Allan would have accepted this role if he thought that Tesco was a business doomed to a gradual decline.

I expect to see further changes in the supermarket sector, and suspect that with the help of its new management team, Tesco may be one of the eventual winners.

For me, Tesco remains a long-term hold.

The post Back The Boss, Not The Firm: Should You Buy Tesco PLC & Barclays PLC? appeared first on The Motley Fool UK.

Well, if history is a guide, the celebration may be short-lived…

Uncertainty

The bank “may not pick its next chief executive until early next year, potentially leaving new Chairman John McFarlane in charge for at least eight months“, Reuters reported on Friday. When such stories emerge, they are rarely welcomed by the market. 

Mr McFarlane may lead the show for longer, however, and that’s likely the reason why Barclays has outperformed its rivals on the stock exchange since the announcement was made on 8 July.

For the record: at 273.8p, its stock currently trades in line with the 52-week high of 276.62p that it recorded on 24 June. 

Antony Jenkins

Mr Jenkins was appointed on 30 August 2012.  Barclays stock had appreciated by almost 50% during his tenure, but most of the gains were recorded in the first five months of trade, meaning that anybody who had invested in Barclays at around 300p a share between February and May 2013 would have so far recorded a paper loss of about 9%, only partly mitigated by dividends.

Academic research shows that when a management shake-up occurs, shareholder value is likely to be up for grabs for some time, but favourable trading conditions tend not not last unless proper changes are implemented. And in this environment, there aren’t many ways to deliver value at Barclays, really.

“New leadership is required to accelerate the pace of execution going forward,” Barclays said last week, adding that the departure of Mr Jenkins “does not signal any major change in strategy“. Hence, relentless cost-cutting will continue — that, at least, emerges from the release.

“If so, we might hear about thousand of job cuts at the end of the month,” a London-based banker told me today (its interim results will be released on 29 July).

John McFarlane

“Barclays is not efficient, we are not productive, we are cumbersome“, Mr McFarlane told the BBC last week. 

He doesn’t have an easy task. Mr McFarlane must improve returns while maintaining competitiveness and boosting the valuation of a stock that is still significantly overvalued at its current levels, in my view, based on fundamentals and trading metrics. 

Here’s another problem: investors seem to be betting on Mr McFarlane, but if he fails there will not be many executives around who would be able to lead Barclays and push its equity valuation closer to 400p rather than to 200p. Since the collapse of Lehman Brothers, the stock has traded in the 200p/300p range —  and I doubt that a faster pace of execution alone will solve its problems. 

The post Is Management Risk A Threat To Value At Barclays PLC? appeared first on The Motley Fool UK.

Bank on resplendent returns

Global banking goliath Barclays grabbed the headlines this week with the shock departure of chief executive Antony Jenkins. Concerns over the breakneck pace of restructuring, particularly at the controversial Investment Bank, is thought to have pushed the firm’s head overboard. Indeed, just today Sky News reported that Barclays has put its Italian and Portuguese retail assets on the block.

With the bank’s downscaling in nearby regions naturally drawing investor attention, Barclays’ success across the lucrative regions of Africa has become overlooked more recently, and to a lesser extent its more modest footprint in Asia. The company provides services to more than 14 million customers in a dozen countries on the continent, including regional powerhouses South Africa and Egypt.

Barclays saw income from its Africa Banking division leap 8% during January-March, a result that propelled pre-tax profit almost a quarter high to £295m. Barclays has rising personal income levels and historically-low financial product penetration across the region to thank for this performance, and is consequently ramping up its operations to latch onto these factors — the British firm bought a controlling stake in Kenyan insurance provider First Assurance just last month.

Financial flows ready to charge

Extreme volatility on the Chinese stock market — not to mention the worsening financial plight of Greece — is once again casting doubts on the strength of investor appetite looking ahead. Indeed, significant macroeconomic worries has weighed on the performance of financial services plays like Ashmore Group in recent times, particularly those geared towards developing markets such as the London business.

Still, I remain convinced by the investment potential of these markets in the long-term, and consequently the revenues potential of Ashmore. Although the company’s latest trading statement today revealed a $2.2bn dip in assets during April-June, to $58.9bn, Ashmore noted that emerging markets ‘performed well‘ compared with established territories. And as chief executive Mark Coombs noted, once the Federal Reserve’s actions become clearer, client activity is likely to lift as sentiment towards these new markets improves still further.

Don’t leave this stock on the shelf

Household goods specialists PZ Cussons are certainly betting big on these exciting territories, the business having recently bulked up its presence in these destinations still further. And with good reason: research house McKinsey & Company estimated recently that consumption in developing regions will hit $30tn within a decade, galloping from just $12tn in 2010.

The company hoovered up health food brand five:am last August, and since then has embarked on a variety of product introductions, like that of baby food label Rafferty’s Garden in China and New Zealand. Broadly speaking Cussons continues to enjoy strong sales expansion across Asia and Africa, and in particular its regional growth hub of Indonesia. And boosted by a string of hot brands like Carex soap and Yo drinks, I believe revenues should keep on charging higher.

The post 3 Emerging Market Plays For Your Portfolio: Barclays PLC, Ashmore Group plc And PZ Cussons plc appeared first on The Motley Fool UK.