The market response to first-quarter results from Barclays (LSE: BARC) (NYSE: BCS.US) today was cool. More of the same, seemed to be the prevailing view: progress as slow and as interesting as watching paint dry. Another big yawn.
The shares are down about 2%, trading at 256p as I write.
Barclays has yet to kindle enough market enthusiasm to fire the shares above the 300p they were bobbing about at two years ago. In contrast, throughout the period, Barclays has been the FTSE 100 bank on which City analysts have been most positive. Indeed, we’ve seen upwards of two thirds of analysts rating Barclays a “Buy” or “Strong Buy”, while you’d be hard-pressed to find more than an odd dissenter recommending a “Sell” at any time during the period. According to data provider Digital Look, there are currently 40 analysts covering Barclays, and not one of them rates the bank a “Sell”.
I can’t say I haven’t been bullish on Barclays myself. The trouble is, a number of things haven’t worked out as hoped for bulls, nasty surprises have been more numerous and sizeable than expected, and progress towards visibility on the new “clean” bank has been extraordinarily slow.
Barclays’ acquisition of the investment banking assets of the collapsed US group Lehman Brothers during the financial crisis looked like a great coup at the time. Buying distressed assets in troubled times can often pay big dividends in the future. The Lehman deal catapulted Barclays into the ranks of the elite handful of global investment banks, with the prospect of juicy returns when the world recovered from financial meltdown.
Unfortunately, investment banking has proved to be tougher than expected. Indeed, Barclays has done a U-turn on its ambition of being a Wall Street powerhouse, and is now in the midst of a protracted process of shrinking its investment banking activities — although the Q1 performance of the division reported today is encouraging.
Then there’s the legacy misconduct skeletons that have kept popping out of banking closets. Barclays has proved to be one of the more hard-core offenders, being at the centre of the 2012 Libor interest-rate rigging scandal. The bank has also been painfully slow to resolve its legacy issues. For example, while other banks (including HSBC and RBS) settled fines with regulators last year for attempting to rig forex markets, Barclays pulled out of the process, so has yet to put that scandal behind it. In fact, the company announced today that it had added a further £800m to what has become over £2bn of provisions.
Analysts’ earnings forecasts keep being reined back, too. The current-year consensus for earnings per share is 24.4p; a year ago it was 33.7p. Likewise the forecast for 2016 has come down to 29p from 36.6p a year ago.
Yet, the analysts remain enthusiastic about Barclays prospects. Following today’s trading update, Numis, for example, reiterated its “Buy” recommendation and 315p target price on the shares.
And I have to agree that Barclays continues to look good value. The current year forecast P/E is 10.5 and falls to just 8.8 for 2016. Meanwhile, the company today reported a net tangible asset value per share of 288p, giving a price-to-net tangible asset value of 0.9 — making Barclays the cheapest FTSE bank on this metric. And, just for good measure, there’s a decent dividend yield forecast: 3.2% this year, rising to 4.4% next year.
Like the City analysts, I think that sooner or later, we’ll see a re-rating of the shares, perhaps even by a radical break-up of assets to out value for shareholders. I say sooner or later. For the past two years its been later! Hopefully, it will be rather sooner for anyone investing today.