Blog

Regaining control - Barclays' latest results have not altered our positive view on its future

25/02/2013

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

Arguably the most interesting thing about Barclays’ latest full-year results was that they were presented by outgoing group finance director Chris Lucas, the last of the UK banking chief executives and finance directors with a link to the credit-crunch years. His upcoming retirement will mean something of a ‘clean slate’ for Barclays, Lloyds and Royal Bank of Scotland.

The results themselves provoked some predictable comment in the media about the whole sector’s bad behaviour but, as regular visitors to this site will be aware, when it comes to banking results there are always two aspects on which we focus above everything else – tangible book value and capital.

Barclays’ tangible book value – a measure of a bank’s fair value that gives us an idea of the changing upside in the business – was essentially flat while its core equity tier 1 capital ratio, which  is an indication of how safe or otherwise it should be as an investment, was a decent 11%

Alongside its results, Barclays took the opportunity to publish its long-awaited strategic review, which essentially aims to take costs out across the business. There has been some slightly conflicting guidance emanating from Barclays’ management of late, which means that – depending on what one chooses to believe – one ends up with an earnings per share number around 45p or closer to 60p. On a conservative multiple, either offers significant upside on a current share price of some £3.20.

None of this is to ignore the sector’s aforementioned bad behaviour – among the more recent headlines, Barclays itself is likely to face some awkward questions over the 2008 bail-out that helped it through the credit crisis. However, its cost-cutting review, especially as the regulatory environment continues to take shape, should now see the bank regain some control over its destiny.

As ever, we accept the future remains uncertain, the bank’s guidance – in any form – may not be met and that earnings per share upside may not be delivered. Nevertheless, on a medium-term outlook of three to five years, these latest results have not altered our broadly positive view on Barclay’s future.

 

Author

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials.  In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

Important Information:

The views and opinions displayed are those of Ian Kelly, Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans and Simon Adler, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated. They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.

This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.