Barclays’ stock (NYSE: BCS) has gained 1% YTD, as compared to the 16% rise in the S&P500 over the same period. Further, it is currently trading at $8 per share, which is 26% below its fair value of just below $11 – Trefis’ estimate for Barclays’ valuation.
Interestingly, Barclays stock had a Sharpe Ratio of almost zero since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.28 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
The bank’s profitability numbers were in line with consensus estimates in the second quarter of 2023. It reported total revenues of $7.87 billion – down 6% y-o-y, primarily driven by a 22% decrease in the corporate & investment bank unit. However, the negative impact was somewhat offset by a 14% rise in Barclays UK and an 18% growth in the consumer, cards and payments segment. Notably, both divisions benefited from higher net interest income due to an increase in interest rates. On the cost front, total expenses were reduced by 21% y-o-y in the quarter, thanks to a favorable drop in the litigation & conduct costs. Overall, the net income improved 24% y-o-y to $1.66 billion (Note – Barclays originally reports in GBP (Pound), the same has been converted to USD for ease of comparison).
The bank’s top line grew 2% y-o-y to $16.9 billion in the first half of FY 2023. It was mainly because of growth in consumer, cards & payments, and Barclays UK segments, partially offset by lower corporate & investment bank revenues. In addition, total operating expenses decreased 12% y-o-y, resulting in a 26% increase in the net income to $3.9 billion.
Moving forward, we forecast Barclays’ revenues to touch $33.81 billion in FY2023. Additionally, BCS’s adjusted net income margin is likely to remain around 20%, leading to an adjusted net income of $6.75 billion and an annual GAAP EPS of $1.69. This coupled with a P/E multiple of just above 6x will lead to a valuation of $11.
|S&P 500 Return||-1%||16%||99%|
|Trefis Reinforced Value Portfolio||-3%||27%||555%|
 Month-to-date and year-to-date as of 9/19/2023
 Cumulative total returns since the end of 2016