Shares in Barclays (LSE: BARC) (NYSE: BCS.US) have taken a bit of punishment over the past year, with a fall of 8.5% to 231p failing to even match a FTSE 100 drop of half a percent over the same period.
Some of that bearishness is down to the seemingly unending stream of fines levied on the banking industry for all manner of misdemeanours over the past few years, and last week’s penalty of $4.3bn on six large banks for rigging foreign exchange markets is but the latest installment.
But is the sector’s pariah status keeping share prices down below a reasonable fundamental valuation? I think it is.
Growth expected
Just look at the current consensus forecast for Barclays, for example. There’s a rise in earnings per share of 23% currently predicted for the year ending December 2014, followed by a further 28% for 2015 to 26.3p per share — that’s an overall increase of 57% over 2013’s figure of 16.7p, and that’s a nice growth story by any standards.
It should feed through to dividends, too, with a modest 1.8% rise to 6.6p per share forecast for this year, but that’s under a regulatory regime that frowns upon paying out too much cash when there are liquidity ratios that could do with beefing up.
If the soothsayers are to be believed, 2015 should see a more substantial rise of 45% to take the dividend to 9.6p per share. Based on the current share price that would provide a yield of 4.1%, and it would be 2.7 times covered by forecast earnings.
That all sounds jolly, but is it going to happen?
Reality
Third-quarter figures revealed at the end of September showed a 5% rise in adjusted pre-tax profit over nine months to £4,939m, with operating expenses still on the way down. Those liquidity ratios were looking healthy and heading in the right direction as well, and net tangible asset value per share was up 8p to 287p in the quarter.
How does that leave the shares looking on fundamental valuation? We’re looking at a P/E of 11 for December 2014, falling to under 9 for a year later. And for growth investors, that represents a PEG ratio of only 0.5 this year and 0.3 next — those who follow such things generally look for 0.7 or less.
All in all, that leaves Barclays shares looking good value to me.