Barclays (NYSE: BCS) is scheduled to report its fiscal Q3 2021 results on Thursday, October 21. We expect Barclays to report mixed results, with revenues topping the consensus and earnings falling short. The bank posted total revenues of £5.4 billion y-o-y in the last quarter, which was just ahead of the year-ago period. However, the growth translated into a 13% y-o-y increase to $7.6 billion due to fluctuations in foreign exchange rates. The company witnessed strong growth in equity trading and investment banking businesses, coupled with recovery in Barclays UK and the consumer, cards, and payments segments. However, the positive impact of growth was almost offset by lower FICC (fixed income, currency, and commodity) trading and corporate lending revenues. That said, the bank’s profitability numbers significantly improved in the quarter due to a favorable decrease in provisions for credit losses. We expect the same trend to continue in the third quarter (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 $12 per share, which is 7% above the current market price of close to $11. Our interactive dashboard analysis on Barclays’ Earnings Preview has more details.
(1) Revenues expected to edge past the consensus estimates
Barclays’ revenues for full-year 2020 were $27.9 billion – just below the year-ago period. The bank reported strong growth in sales & trading and the investment banking businesses, offset by lower revenues in Barclays UK and consumer, cards, and payments segments.
- BCS generated around 36% of the total revenues from sales & trading and investment banking cumulatively in 2019. The revenue share increased to 48% in 2020 driven by 43% y-o-y growth in sales & trading and a 6% increase in investment banking revenues. It was because of higher trading volumes and a rise in underwriting deal volumes in the year, due to the impact of the Covid-19 crisis. The same trend continued in the first quarter of 2021. But the pattern changed in the second quarter, due to negative growth in the FICC trading revenues. That said, equity trading and investment banking maintained their growth trajectory in Q2. We expect the sales & trading and investment banking revenues to follow the same trend in the third quarter.
- The Barclays UK and consumer, cards, and payments segment cumulatively generates around 55% of the total revenues. However, the revenue share decreased to 45% in 2020, due to a lower interest rate environment and a drop in consumer spending levels. While the Q1 results were on similar lines, the company witnessed some recovery in the Barclays UK and consumer, cards, and payments segment in the second quarter. It was driven by improvement in consumer spending levels. We expect the same momentum to continue in the third quarter.
- Overall, we expect Barclays’ revenues to touch $30.5 billion for FY2021.
Trefis estimates Barclays’ fiscal Q3 2021 revenues to be around $7.38 billion, slightly above the $7.30 billion consensus estimate. We expect the core-banking and equity trading revenues to drive the third-quarter results.
Moving forward, we expect the sales & trading and investment banking revenues to normalize over the subsequent quarters, with recovery in the economy. Further, the core banking revenues are likely to benefit from improvement in consumer demand, partially offset by low-interest rates. The low-interest-rate environment is unlikely to see a swift revival. Our dashboard on Barclays’ revenues offers more details on the company’s operating segments along with our forecast for the next two years.
2) EPS is likely to miss the consensus estimates
Barclays Q3 2021 adjusted earnings per share (EPS) is expected to be $0.32 per Trefis analysis, almost 11% below the consensus estimate of $0.36. The bank’s adjusted net income suffered a 39% y-o-y drop to $1.96 billion in 2020, primarily due to a 1.5x increase in provisions for credit losses to $$6.2 billion. The net income increased more than 200% y-o-y to $2.35 billion in the first quarter of 2021, as the bank reduced its provisions figure due to recovery in the economic conditions. The same momentum continued in the second quarter, with the bank’s net income increasing from $113 million to $2.9 billion. It was due to a credit reserve release of nearly $1.1 billion in Q2. We expect the provisions to further decrease in the third quarter.
Going forward, we expect Barclays’ net income margin to be around 19.5% in FY2021 – up from 7% in the previous year, leading to an adjusted net income of $5.9 billion. This will likely result in an EPS of $1.40.
(3) Stock price estimate 7% higher than the current market price
We arrive at Barclays’ valuation, using an EPS estimate of around $1.40 and a P/E multiple of just below 9x in fiscal 2021. This translates into a price of approximately $12, which is 7% above the current market price of around $11.
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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