Barclays stock beat consensus in Q4, is it a buy?
Barclays (NYSE: BCS) stock is down around 17% year-to-date, compared to a 10% drop in the S&P500 over the same period. Moreover, at its current price of $9 per share, it is trading 17% below its fair value just above $10 – Trefis’ estimate for Barclays valuation. The investment bank recently released its fourth quarter results, beating consensus estimates for earnings. It posted total revenue of $6.95 billion, up 7% year-on-year. This was driven by a 7% year-on-year rise in Barclays’ UK segment, driven by 12% growth in the retail banking sub-division. That said, corporate and investment banking saw marginal growth in the quarter. While investment banking fees jumped 29% year-over-year, this was nearly offset by a 21% drop in sales and trading revenue. (Note – Barclays originally reports in GBP (pound), the same has been converted to USD for ease of comparison)
Although revenue growth was single-digit, adjusted net income more than quadrupled to $1.5 billion in the fourth quarter. This is mainly due to lower operating expenses as a % of revenue – the figure fell from 77% to 72%. Additionally, provisions for credit losses were reduced by $650 million to -$42 million. Notably, the provisions figure saw a significant accumulation in 2020 due to the Covid-19 crisis and the economic downturn.
The company’s total revenue increased 8% year-on-year to $30.2 billion in 2021. This was driven by a 10% revenue growth at Barclays in the UK, followed by a 6% increase. % in corporate and investment banking and a 4% increase in the consumer, cards & payments segment. Barclays UK unit benefited from an 18% increase in the Personal Banking division coupled with a 15% increase in the Wealth, Entrepreneurs & Business Banking division. In addition, growth in corporate and investment banking was driven by higher equity trading revenue and investment banking fees, partially offset by lower FICC (fixed income, currencies and commodities). In total, the above revenue growth translated into a 3.5x increase in adjusted net income to $8.8 billion. This was mainly due to a favorable decrease in provisions for credit losses, which fell from $6.2 billion to -$898 billion.
The Federal Reserve is expected to raise interest rates in fiscal 2022. This will likely improve the net interest margin. In addition, outstanding loans and card payment volumes should improve with the recovery of economic conditions. On the other hand, revenues from sales & trading and investment banking should normalize over the coming quarters. Globally, Barclays revenue are expected to remain around $30 billion in fiscal 2022. In addition, BCS’s adjusted net margin, which increased from 7% to 29.1% in 2021, is expected to decline to around 20% in fiscal 2022. ‘year. This will likely translate to adjusted net income of $6 billion and annual EPS of $1.42. This, coupled with a P/E multiple just above 7x, will lead to a valuation of $10.
Here you will find our previous coverage of Barclays shares, where you can follow our view over time.
What if you were looking for a more balanced portfolio instead? here is a quality portfolio which has consistently beaten the market since late 2016.
Invest with Trefis Wallets that beat the market
See everything Trefis Price estimates