- Shares drift despite solid second quarter results
- Share buyback of £500 million announced
- Full year target of over 10% return on equity confirmed
Shares in Barclays (BARC) drifted 3% to 153p despite the bank posting second quarter results which beat expectations.
Total income for the quarter ended 30 June, defined as the sum of net interest income plus net fee, commission and other income, was £6.71 billion.
That compared with a Capital IQ consensus forecast of £6.21 billion and income of £5.42 billion in the same quarter a year ago.
MIXED MESSAGE
Also on a positive note, management reiterated its guidance for a full-year return on tangible equity of greater than 10%, which implies potential for upgrades, and announced a £500 million share buyback which was larger than the market anticipated.
However, the group also raised its cost forecast for 2022 following a series of conduct and litigation charges in the second quarter.
Meanwhile, the bank's Core Equity Tier 1 ratio - a measure of financial strength and its ability to absorb unexpected losses - came in at 13.6%, below the consensus forecast of 13.8%.
Profit before tax fell 40% year on year to £1.5 billion, also below the consensus forecast of £1.63 billion, although earnings per share of 6.4p were ahead of market forecasts thanks to a lower than expected tax charge.
The group's UK net interest margin reached 271 basis points (2.71%), and management raised its full year forecast range from 270 to 280 basis points (2.7% to 2.8%) to 280 to 290 basis points (2.8% to 2.9%).
Net interest margins are the difference between the interest the bank charges on loans and the interest it pays on savings deposits.
U.S. WRONGDOING
Earlier this year, Barclays disclosed it had sold $15.2 billion more structured notes than was allowed under US regulations, resulting in a £1.3 billion charge for over-issuance of securities.
Under US banking rules, Barclays was permitted to sell over a three-year period $20.8 billion (£15.8 billion) worth of structured notes that track equities and exchange traded notes that track commodity prices and offer debt-related trades.
However, lax internal controls meant it breached this amount by a considerable amount.
EXPERT VIEW
Shore Capital analyst Gary Greenwood said: ‘Barclays’ shares are down 16% year to date and currently sit 27% below their 12-month high of 217p. At yesterday’s closing price of 158p, Barclays trades on a trailing price/tangible net asset value of 0.5x versus a target return on equity of 10% in 2022.
‘There is currently 90% upside to our last published fair value of 300p, which is based on the group achieving a sustainable return on tangible equity of 10% longer-term and is therefore in line with management targets.’
‘We view Barclays as being grossly undervalued and therefore one of the most attractive stocks in our banks and lenders coverage universe.’
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