Barclays’ stock (NYSE: BCS) has lost approximately 17% YTD as compared to the 10% drop in the S&P500 over the same period. Further, at its current price of $9 per share, it is trading 17% below its fair value of just above $10 – Trefis’ estimate for Barclays’ valuation. The investment bank recently released its fourth-quarter results, beating the consensus estimates for profit. It posted total revenues of $6.95 billion – up 7% y-o-y. This was because of a 7% y-o-y rise in the Barclays’ UK segment, led by 12% growth in the personal banking sub-division. That said, the corporate & investment bank saw marginal growth in the quarter. While the investment banking fees jumped 29% y-o-y, this was almost offset by a 21% decrease in the sales & trading revenues. (Note – Barclays originally reports in GBP (Pound), the same has been converted to USD for ease of comparison)
Although the revenue growth was single-digit, the adjusted net income increased more than 4x to $1.5 billion in Q4. This was mainly due to lower operating expenses as a % of revenues – the figure fell from 77% to 72%. Further, the provisions for credit losses were reduced from $650 million to -$42 million. Notably, the provisions figure saw a sizable build-up in 2020 due to the Covid-19 crisis and the economic slowdown.
The company’s total revenues increased 8% y-o-y to $30.2 billion in 2021. It was due to a 10% growth in Barclays’ UK revenues, followed by a 6% increase in the corporate & investment bank and a 4% rise in the consumer, cards & payments segments. The Barclays’ UK unit benefited from an 18% rise in the personal banking division coupled with a 15% increase in the wealth, entrepreneurs & business banking. Further, the corporate & investment bank’s growth was driven by an increase in equity trading revenues and investment banking fees, partially offset by lower FICC (fixed income, currency & commodity) trading revenues. Altogether, the above revenue growth translated into a 3.5x increase in the adjusted net income to $8.8 billion. This was mainly due to a favorable decrease in the provisions for credit losses from $6.2 billion to -$898 billion.
The Federal Reserve is likely to hike interest rates in FY2022. This will likely improve the net interest margin. Further, the outstanding loan balances and card payment volumes are likely to improve with recovery in the economic conditions. On the flip side, the sales & trading and investment banking revenues are expected to normalize over the subsequent quarters. Overall, Barclays’ revenues are expected to remain around $30 billion in FY2022. Additionally, BCS’ adjusted net income margin, which increased from 7% to 29.1% in 2021, is expected to come down to around 20% in the year. It will likely result in an adjusted net income of $6 billion and an annual EPS of $1.42. This coupled with a P/E multiple of just above 7x will lead to the valuation of $10.
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|Trefis MS Portfolio Return||-3%||-13%||244%|
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