Barclays (NYSE: BCS) is scheduled to report its fiscal Q2 2021 results on Wednesday, July 28. We expect Barclays to likely beat the consensus estimates for revenues, while its earnings are likely to remain below the expectations. The company outperformed the street expectations in its first-quarter 2021 results, with its top-line inching ahead of the year-ago figure. While the firm posted positive growth in the corporate & investment bank segment (sales & trading and investment banking), it was almost offset by lower core banking revenues. We expect the same trend to drive the second-quarter results. (Note – Barclays originally reports in GBP (Pound), the same has been converted to USD for ease of comparison).
Our forecast indicates that Barclays’ valuation is around $12 per share, which is 33% more than the current market price of around $9. Look at our interactive dashboard analysis on Barclays’ pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to beat the consensus estimates
Trefis estimates Barclays’ fiscal Q2 2020 revenues to be around $7.59 billion, around 3% above the $7.40 billion consensus estimate. The company reported total revenues of $27.9 billion in 2020 – just below the 2019 figure. This was despite unusually high growth in sales & trading and investment banking businesses, similar to other investment banks. However, the growth was almost offset by lower core-banking revenues, which suffered due to interest rate headwinds and lower consumer spending levels. The Barclays UK and consumer, cards & payments units cumulatively contributed close to 55% of the total revenues in 2019, which declined to 45% in 2020. The same trend continued in the first quarter of 2021 also, and we expect it to govern the second-quarter results as well.
Moving forward, we expect the sales & trading and investment banking revenues to normalize over the subsequent quarters. However, till then, they will continue to drive the top-line. Further, interest rates are expected to remain below the pre-Covid-19 levels for some more time. That said, recovery in consumer spending levels is likely to benefit outstanding loan balances and payments activity. Overall, the above factors will likely enable the bank’s revenues to touch $29.9 billion in FY2021. Our dashboard on Barclays Revenues offers more details on the company’s segments.
2) EPS is likely to miss the consensus estimates
Barclays Q2 2020 adjusted earnings per share (EPS) is expected to be $0.45 per Trefis analysis, almost 13% below the consensus estimate of $0.52. The Covid-19 crisis and the economic slowdown negatively affected the loan repayment capability of customers, increasing the risk of loan defaults. Hence, BCS increased its provisions for credit losses from $2.5 billion to $6.2 billion in 2020 to compensate for the higher risk. It reduced the adjusted net income of the bank by 39% y-o-y to $1.96 billion. That said, the firm has reduced its provisions over the recent quarters, including a 97% y-o-y drop in the first quarter. We expect the same trend to drive the second-quarter results.
The adjusted net income margin is likely to improve in 2021, driven by lower operating expenses and a favorable decrease in the provisions for credit losses. Overall, the bank is likely to report an EPS of around $1.22 in the year.
(3) Stock price estimate 33% more than current market price
Going by our Barclays Valuation, with an EPS estimate of around $1.22 and a P/E multiple of close to 10x in fiscal 2021, this translates into a price of $12, which is 33% above the current market price of around $9.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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