- Shares move lower from 15-year high despite strong results
- No real upside surprises
- Increase in loan losses a potential concern
- Proposed cash returns could be a source of support for shares
“The old stock market saying that ‘it is better to travel than to arrive’ looks set for another airing as Barclays’ shares slide despite strong earnings and promises of further generous cash returns to shareholders,” says AJ Bell investment director Russ Mould.
“The shares had just hit their highest mark since 2010 and the full-year results for 2024 contained no real upside surprises, while an increase in loan losses in the fourth quarter put some investors on alert. However, the plan to return a further £7 billion to shareholders, or some 16% of its stock market capitalisation, may be more than enough to keep patient shareholders interested.
Source: LSEG Refinitiv data
“Barclays’ strong share price run in the past year or so, enough to leave it the third-best performer within the index over the year to Wednesday evening, suggests the bank has finally earned and paid its way back into investors’ affections, some seventeen years after the global financial crisis.
“Annual profits of £8.1 billion is the second-best figure this century, even exceeding the early 2000s, pre-crisis boom.
Source: Company accounts, Marketscreener, consensus analysts' forecasts
“Barclays has declared dividends worth £1.2 billion for 2024, when it also ran a £1.75 billion share buyback programme. That £3 billion total distribution is also the second highest since the turn of the century. Management’s goal of returning a further £7 billion across 2025 and 2026, with an unchanged dividend payout in each year in total, implies a £2.3 billion run rate for buybacks.
Source: Company accounts, Marketscreener, management guidance, consensus analysts' forecasts
“A run-rate cash return of some 8% a year beats inflation and compares nicely to the returns available from cash or UK government gilts, too. If the bank can keep this up and continue to stay out of trouble with the regulator, it could even be turning into the sort of boring, quasi-utility lender for which investors longed in the wake of the global financial crisis when egregious risk-taking across the industry led to disaster.
Source: Consensus analysts’ forecasts, company investor relations’ websites
“However, Barclays is not there yet and is never likely to be that boring, quasi-utility because it is still fully committed to its investment bank. The fuss caused by Sherborne Investors’ attempts to force management to spin off the operation has long since died down and the unit has provided improved earnings on a year-on-year basis in each of the last three quarters.
Source: Company accounts
“It remains to be seen how the investment bank performs if, as and when the next bear market hits home, but for the moment the volatility caused by President Trump across equities, fixed income, currencies and commodities could help, providing price movements do not become so great that they deter merger and acquisition activity or new stock market flotations.
“Trump’s trade and tariff policies could yet stoke inflation, if some economists are correct, and that may mean interest rates stay higher for longer. Something like a return to ‘normal’ interest rates and bond yields, after fifteen years of zero interest rates and several bouts of Quantitative Easing, is helping Barclays’ net interest margin in the UK no end.
Source: Company accounts
“Regulators and consumers may not be so enthused about that, but it is a boon for shareholders, as the share price suggests. Markets are pricing in three more interest rate cuts from the Bank of England in 2025 and deposits are growing again to support net interest income. Analysts still expect Barclays’ overall earnings to rise this year, helped by cost efficiencies and higher fee and commission income at the private and investment banks.
“It remains to be seen whether interest rates do stay higher for longer and whether this starts to affect Barclays’ loan book. Write-offs for bad loans rose in the fourth quarter and marginally for 2024 overall, but the annual total of £2 billion for last year represented nothing unusual compared to the run rate seen in the middle of the last decade, after the worst of the financial crisis had passed and before Covid struck.
“Analysts do not expect a major deterioration in sour loans in 2025, at least for now, although the direction of gilt yields and Bank of England base rates could yet have a say.
Source: Company accounts, company investor relations website, consensus analysts' forecasts
“But it is the investment bank’s capacity for boom-and-bust earnings cycles which is the simplest, and most likely, explanation for why Barclays’ shares continue to trade at a discount to those of its FTSE 100 peers, at least on the basis of price to historic net asset, or book, value.
Source: Company accounts, consensus analysts' forecasts, LSEG Refinitiv data. Historic book value covers Q4 2024 for Barclays and Q3 for the other four.
“A period of consistent results may ease those fears and help Barclays achieve its overall return on equity targets of 11% for 2025 and more than 12% for 2026. If those goals can be met, then Barclays may also deserve to trade on one times NAV or even a higher.”
