Today I am looking at why I believe Barclays (LSE: BARC) (NYSE: BCS.US) is set to march higher.
Ready to ride UK economic revival
I believe that Barclays is in a fantastic position to ride the ongoing improvement in the British economy. The high-street stalwart reported that adjusted pre-tax profit at its UK Retail and Business Banking division rose 3% during January-September, to £983m, helped by strong mortgage growth and its Barclays Direct savings and mortgage subsidiary.
As well, the business also saw profits within Corporate Banking surge 70% during the period to £678m, helped by an increase in income in the UK. With its African operations also delivering breakneck growth in emerging markets, and Barclaycard benefiting from rising lending volumes across the business, I fully expect the firm’s full-year results — due for release on Tuesday February 11 — to confirm a continuation of strong momentum across most of the business.
Cost-cutting measures to keep on slashing
The bank continues to make vast strides in cutting its enormous cost base through its Transform restructuring scheme, and confirmed last week that — excluding expenses — it hopes its to achieve a cost target of £16.8bn in 2015. This is down from an expected £18.5bn in 2013.
Chief executive Antony Jenkins has made no secret of his desire to initiate a technological overhaul at the bank and cotton onto changing consumer habits. While attracting fresh custom through the doors, the move will also facilitate further significant reductions in the company’s headcount — just last week the company announced a further 400 job losses at its Corporate Banking arm — while also taking the hatchet to Barclays’ extensive network of 1,600 branches.
A relatively cheap banking pick
The firm’s recovery plan is expected to herald a strong earnings rebound for this year and next. Following an anticipated 26% earnings slide in 2013, earnings are anticipated to snap back by the same percentage this year, City analysts reckon. A further 20% increase is pencilled in for next year.
These projections leave Barclays dealing on P/E ratings of 9.1 and 7.6 for this year and next, well below the value benchmark of 10 and smashing a wider forward average of 16.8 for the complete banking sector. I believe that these figures make the bank too good to pass up at current price levels.