Barclays PLC Slips Deeper Into Buy Territory

Barclays Is Down Nearly 25% This Year

Three weeks ago, I suggested that recent price falls made Barclays (LSE: BARC) (NYSE: BCS.US) a buy again. At the time, it traded at 253p, down from 300p in January. It has since fallen another 8% to 232p. So I’m back, with an updated message: Barclays is down almost 25% since the start of the year, pushing it even deeper into buy territory.

Right now, there is a tension at the very heart of Barclays, and that is causing share price palpitations. The fault line is between its retail and investment banking decisions. Chief executive Antony Jenkins has rightly identified that its retail arm urgently needs to rebuilt customer trust, a process he admits will take the best part of the decade. 

That’s partly the thinking behind the £1.2 billion Project Transform. But values such as “respect” and “integrity” don’t fit easily with the crazy world of investment banking.

Someone Is Making Money From Barclays

Jenkins knows that if he wants to compete with the big US and Asian banks, he has to keep its investment bankers sweet. He recently announced a controversial 10% increase in its bonus pot to £2.4 billion, despite a 32% drop in underlying profits to £5.2 billion. Twelve executives pocketed £32 million in shares, to predictable headlines. 

Giving the conflicting goals of the two divisions, Barclays remains prone to lurch from one crisis to the next. Its public image crisis will continue, as it looks to cut costs by laying off 12,000 lower-paid staff. 

There has even been talk that Barclays will spin off its investment banking operation. Jenkins has to make his mind up: does he want respect and integrity, or does he want a flourishing investment bank? He can’t have both, it seems.

Barclays The Transformer

Yet I still think there are strong reasons to invest in Barclays, especially at this price. Project Transform isn’t just about giving Barclays a shiny makeover. The bank is also looking to slash costs by cutting staff, closing branches and moving into mobile banking.

Regulation is a constant thorn in its side, but Barclays now has a healthy core tier 1 ratio of 13.2%, up from 10.8% on 31 December 2012. If the UK economy continues to recover, Barclays will follow.

Earnings per share forecast to rise a whopping 67% this year, and another 22% in 2015. This only bolsters the case for buying Barclays. As does the rapidly rising dividend. The current 2.8% yield is forecast to hit 5.6% by December 2015. At a lowly price/earnings ratio of just 6.8 times earnings for December 2015, now looks a sound time to buy and hold for the long-term. 

Naturally, the Barclays share price could go even lower. Deutsche Bank recently lowered its target price from 325p to 320p, although it still calls Barclays a ‘Buy’. JP Morgan has trimmed its target price from 300p to 285p, while remaining overweight. Barclays hasn’t been this cheap for 18 months. You could wait for it to get cheaper, but frankly, it looks like a buy today.