Here’s a number that shocked me. Barclays’ share price now trades lower than it did exactly a decade ago. Quite a lot lower, too.
On 6 June 2009 the share price topped 263p. At time of writing, 10 years ago to the day, it trades almost 40% lower at 152p. The stock has endured its share of ups and downs in that time, but the overall trajectory has been down.
Decade of doom
Everyone knows the 2007 financial crisis destroyed banking stocks, even if Barclays avoided a bailout, but what astonishes me is that the decade since has been so damaging. It is down another 22% in the past year alone. Investors (including me) who thought it was ripe for a recovery as it shrugged off past misdemeanours and rebuilt its balance sheet got it wrong.
Which is weird because there are so many things about Barclays that look right. The swingeing mis-selling and regulatory penalties are retreating, and there will be another step in the right direction when the claims deadline for the PPI mis-selling finally hits on 29 August.
Profits up
Its Q1 results showed the bank turned a pre-tax profit loss of £236m one year ago into a £1.48bn gain, although this was largely down to fewer bad debts and conduct charges, rather than improved underlying trading. Its full-year net profit in 2018 was £1.4bn, turning round a 2017 loss of £1.92bn (the proviso here is that 2017 saw a one-off £901m write down due to US tax reforms).
The big banks have notoriously complicated accounts making them hard to gauge, but the upwards direction of travel seemed clear.
Cheap and yielding
Barclays has a 2018 core capital ratio of 13.1%, unchanged from the year before. Its valuation looks compelling, as it trades at just seven times forecast earnings, roughly half the 15 times generally seen as offering fair value. Its price-to-book value is just 0.4. Dirt cheap, in the jargon.
Plus you now have the prospect of a healthy dividend income stream too. Barclays currently yields just 3% but this is forecast to hit 4.8% this year and 5.5% in 2020. Even then it will be generously covered 2.9 times by profits, City analysts reckon.
Yet still it falls!
The B-word
Naturally, there are reasons for its troubles. One of them is Brexit. Barclays recently set aside a £150m Brexit provision, yet the overall cost must be far greater as the UK economy slows. This is a problem as the bank now has a far greater domestic focus, while corporate and investment bank Barclays International continues to disappoint.
The penalties still come, as Barclays is one of five banks fined a total €1bn by the European Commission for questionable foreign exchange trades between 2007 and 2013.
Then there is the wider worry of a global economic recession. That would lead to a surge in bad debts, and possibly more interest rate cuts, making it even harder to repair net interest margins.
I would still buy Barclays stock at today’s dirt cheap price, but with one proviso. Aim to hold it for at least 10 years and keep reinvesting those dividends until it finally comes good. It must climb one day, mustn’t it?