Barclays’ stock (NYSE: BCS) has lost 28% YTD, as compared to the 15% decline in the S&P500 over the same period. Further, it is currently trading at $7 per share, which is 27% below its fair value of $10 – Trefis’ estimate for Barclays’ valuation. The bank missed the consensus estimates of profit in the recently released second quarter. Its total revenues increased 12% y-o-y to $8.4 billion, mainly driven by growth in sales & trading and consumer, cards & payments divisions. The sales & trading growth was driven by higher revenues in both the FICC (fixed income. currency & commodity) trading and equity trading businesses. Similarly, the consumer, cards & payments segment benefited from an improvement in the net interest income (NII) due to higher interest rates and loan growth. Notably, total NII in the quarter grew 6% y-o- y to $3 billion. That said, despite the increase in the top line, the adjusted net income decreased 54% y-o-y to $1.3 billion. It was because of $1.7 billion in litigation and conduct cost and an unfavorable increase in the provisions for credit losses (Note – Barclays originally reports in GBP (Pound), the same has been converted to USD for ease of comparison).
The bank’s top-line increased 8% y-o-y to $30.2 billion in 2021, with all the segments posting growth. Further, the company’s revenues increased by 9% y-o-y to $17.2 billion in the first half of 2022. It was mainly driven by growth in the sales & trading and cards & payments segments, partially offset by lower revenues in the investment banking business. Markedly, the NII improved 14% y-o-y in the first half of the year, primarily due to interest rate hikes. On the flip side, the adjusted net income decreased 38% y-o-y to $3.2 billion in the first half.
Moving forward, we expect sales & trading to continue its growth trajectory due to volatile market conditions. Further, improvement in interest rates will likely benefit the NII of the bank. Overall, Barclays’ revenues are forecast to remain around $29.1 billion in FY2022. Additionally, BCS’s adjusted net income margin is likely to stabilize around 20%, leading to an adjusted net income of $5.7 billion and an annual EPS of $1.35. This coupled with a P/E multiple of just below 8x will lead to the valuation of $10.
|S&P 500 Return||8%||-15%||82%|
|Trefis Multi-Strategy Portfolio||11%||-14%||240%|
 Month-to-date and year-to-date as of 7/29/2022
 Cumulative total returns since the end of 2016