Tough Macroeconomic Environment Likely To Weigh On Barclays’ Revenue In Q1

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Barclays (NYSE: BCS) is expected to publish its Q1 2019 results on April 25. We expect the bank’s revenue to decline by 1.1% year-over-year to £5.3 billion and EPS is expected to come around £0.05 as compared to -£0.04 reported in the prior-year quarter. The bank has beaten earnings forecasts in six of the last eight quarters, but missed estimates in five of the last eight quarters for revenue. Earnings declined sharply from Q3 into Q4, but we forecast its earnings to rebound in the coming quarter.

We have summarized our full year expectations for BCS based on the company’s guidance and our own estimates, in our interactive dashboard What Has Driven Barclays’ Revenues & Expenses Over Recent Quarters, And What Can We Expect For Full-Year 2019? You can modify any of our key drivers to gauge the impact changes would have on its valuation, and see more Trefis Financial Services Data here. Below we highlight some of the key historical trends and factors that are likely to impact Barclays’ future performance:

How Have Barclays’ Revenues Changed And What To Expect In Q1?

  • Barclays’ revenue has fluctuated considerably over recent quarters. After surging to £5.6 billion in Q2 2018, revenues declined to £5.1 billion in Q4 2018.
  • This decline can be primarily attributed to challenging market conditions towards the second half of FY 2018, which in turn adversely impacted its Corporate Division revenues.
  • BCS is expected to report revenue of £5.3 billion in Q1 2019, a figure 1.1% lower than what it reported a year ago as low consumer confidence, poor investment sentiment, uncertainty over Brexit continue to impact the bank’s revenues across operating segments.

How Have Barclays’ Expenses Changed And What’s The Q1 Outlook?

  • Barclays’ total expenses have trended lower over recent quarters, with the exception of Q1 2018, when total expenses swelled to £5.3 billion driven by one-time RMBS litigation cost of £1.4 billion paid to the U.S. DoJ.
  • Barclays has been able to improve its adjusted cost-to-income ratio from 70% in 2016 to 66% in 2018.
  • We expect the declining trend to continue in Q1 2019 primarily due to the absence of one-time litigation costs.

What Are The Key Factors To Watch In Barclays’ Q1 Results?

Impact of Brexit

  • Uncertainty surrounding Brexit is adversely impacting client activity in the U.K.
  • This in turn is likely to impact Barclays’ U.K. revenues across segments, as continued uncertainty can weigh on investment activity.
  • Moreover, an uncertain outlook for the direction of monetary policy, the U.S.-China trade conflict, slowing global growth and political concerns in the U.S. and Europe (including Brexit) are all likely to weigh on BCS’ profit in Q1.

Focus on Corporate Division

  • Barclays’ Corporate Division will be in focus in Q1 results as activist investor Edward Bramson, who owns more than 5% of Barclays, is pushing for restructuring of the securities trading operations.
  • Trading division revenues declined by 4.5% (y-o-y) in Q4 2018 and we expect this declining trend to carry over in Q1. This is likely to add pressure to the bank’s under-performing IB division.

Profitability Likely to Improve

  • Despite the tough macroeconomic environment, we expect the bank’s net margin to increase to 15% in Q1 2019, which is a significant improvement from -1.5% reported in Q4 2018.
  • Lower operating expenses, coupled with a lower effective tax rate – which is expected to be around 20% through 2019, compared to 39% in Q4 2018 – are all likely to boost the bank’s net income margin.

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