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Morgan Stanley is very positive to BARC stock. The firm raised PT to 270p (bear case 125p, bullish case 350p).
Excerpts:
IB performance was mixed in the quarter, however better revenues in UK and US cards, together with better cost control drove the bottom line beat. Post results our 2025e/26e EPS moves up 2%. On 0.55x P/TBV 2024e for an 11% 2026e RoTE, we re-iterate our Overweight. Our PT increases to 270p.
Merril Lynch (Bank of America) - as usually negative PT190p
OK numbers, strategic challenge remains
A small headline beat turns into a miss on an underlying basis. While Barclays, has
reiterated its targets, there’s little evidence of progress so far. Investment Bank market
share loss continues and we’d expect UK growth to be a slow process, with 30% balance
sheet growth over three years still stretching. Positives are BUK margin expansion and
reiteration of cost targets even with the £120m BoE levy. Share buybacks are attractive
but we continue to see Barclays as strategically challenged and stay Underperform.
Q1 6% ahead reported, underlying miss
Attributable profit of £1,550m is 6% above consensus and down 13% YoY. Revenues and
provisions are 1% and 5% better than consensus respectively and costs are in line.
Excluding the £125m Visa B shares gain, income and earnings would be 1% and 2%
below consensus, with the miss likely bigger if adjusted for the unquantified legacy
investment gain in Head Office. A 13.4% CET1 ratio compares to 13.5% consensus with
risk weighted assets £7bn higher QoQ. Tangible book of 335p is up 1% QoQ.
So the market responded very favorably to BARC stock, let me put the positive here:
1. Q1 10.3p beat estimate 9p
2. Except US card RoTE ~5%, all other segment has demonstrated above 12% RoTE. So 12% RoTE is doable
3. 2024 full year RoTE c10.5. Using 335p TNA as base, this is ~35p EPS or more depending on TNA. This beat current US estimate ~30p by a large margin.
4. Q1 buybacks contributed 1p TNA. This is the beauty of PB less than 1. Per share tangible book value increased ~ £150M. This round buybacks will contribute another 4-5p. And full year £2B buybacks will contribute ~ 10p TNA per share which is equal to increase EPS by 1p.
I will monitor Morgan stanley and Merril Lyng say about the BARC Q1 earnings.
BUK and IB are all down except US card business increased 4%... topline revenue growth is much weaker than Duetch bank, which just announced the earning an hour or two ago. I'm not sure market response with such poor topline growth.
It seems a beat on EPS 10.3, income £7B, RoTE 12.3%, TNA 335p.
Still in progress reading IB and other details ....
Q1 EPS estimate 9.3p or 45c/ADR
Q2 EPS estimate 7p
Total income reference points:
Q1 2023 7.24B GBP
Q4 2023 5.6B GBP
Need to see top line yoy and QoQ growth. US investment banks are all doing good. Revenue all went up from last week earning report. Let’s what Barc reports tomorrow morning. US PDT is mid-night.
Disclaimer: my analysis does not factor in the scenario where a deep recession causes revaluation of asset value and EPS damage.
With the existence of a still sizable investment bank biz, which is anti cycle to UK retail banks. The damage to EPS could be very limited. Looking back 14 years, Barclay has only 1 year (2017) with red ink (-10.3p). Even with 2020 covid shock, Barclay is profitable when all other UK banks are red in the year.
So my simple comparison seems we will see 250p-350p when we reach 2026. Hopefully, we do not meet a very deep recession during the following 3 years.
Then I did a hypothetic analysis with a very pessimistic constant earning with ~£6.2B buyback to estimate share counts reduction and EPS/TNA boost.
Assuming 2024 EPS 30p, TNA 331p (per Q4 earning). I deducted dividend and buyback cost and applied the reduce share counts. For 2024, 2025 and 2026, I get TNA 362p, 395p and 432p, EPS 30p, 32p and 34p. Share counts reduce to 12.69B (assuming 2024 buyback average price 200p, 2025 220p and 2026 240p.
By end of 2026, TNA 432p, EPS 34p and share counts 12.69B. These metrics are very close to 2009-2012 timeframe TNA and EPS. The stock price then was between 250p-350p after bouncing back from early 2009.
My analysis has not factored in the additional earning from the retained EPS for profit growth. My ROA is below 10% as you can see. Still the stock shows healthy growth of per share asset and earning. If we apply 10% ROA, ESP will reach 43p.
I dug out all financial xls Barclays put on their website since 2009. I should have done that earlier and we have a chance to see path to pre-2009 financial crisis. The table below is the summary.
yr Total Income (£B) Tangible net assest (p/sh) EPS (p) Total shares (B) Comment
2009 31 NA 86.2 11.289
2010 31.44 346 30.4 11.724
2011 28.454 391 25.1 15.741
2012 29.043 373 34.5 14.559
2013 28.155 283 16.7 14.341
2014 25.728 285 17.3 16.063
2015 24.528 324 16.6 16.241
2016 21.451 290 10.4 15.605
2017 21.076 276 -10.3 18.660
2018 21.136 262 9.4 14.829
2019 21.632 262 24.4 17.190
2020 21.766 269 9.5 17.247
2021 21.94 292 37.5 17.000 Reinstate EPS 36.5 (over issurance)
2022 24.956 295 30.8 16.308
2023 25.378 331 27.7 15.430 Q4 rest ~8p
With dividend reinvestment, my guess is the volume should be substantially higher than a normal trading day. UK yahoo shows only 32M shares traded so far, which is about half of the average volume. Similarly, US ADR trading volume is also only 10M. Maybe the reinvestment happens at close? Anyone has an explanation?
My calculation of 15.1B share x 0.053 = ~£0.8B. If 50% applies dividend reinvestment, £400M can buy 210M ordinary shares.
BARC total share counts will reduce to Oct 23, 2023 post buy-back level by tomorrow. The damage of employee stock compensation has cost over 1 month buyback to level the hole.
Another note of the shorted shares, using today's price, their paper loss has reached £20M or nearly 10%.
Hotter economy data means interest rate higher for longer, which is a positive to NIM - a main source of bank earning. A hotter economy also means less bad loan write off, which is another positive factor.
With government printing so much money, inflation will last longer and central banks will hold off from cutting interest rate. Inflation reacceleration would be a disaster for FED and BOE to contain it. Crude has gone up in past a few month. If March inflation data continues to show higher than expected inflation, stock may turn south quickly and bank stock will eventually follow the macro market.
Since they are quite a few people mentioned the increased short position, which stands at 0.8% today.
I did a calculation based on the filing date close price and the percentage. The short position has a total cost £204.7M, paid £4M dividend and on paper loss £14.7M or ~7%.
Let's see how this plays out. The short either wins big if economy turns to south quickly and bank starts to lose money and forced to stop buybacks, or the short can dig a really deep hole by themselves. A paper loss above 10% would require risk management review and justification. An even deeper loss will certainly incur some people to lose their jobs.
I just checked my record on spreadsheet. When Barclay completed buyback on Oct 24, 2023, the remaining total floating shares were: 15,073,890,051 shares. Compared to Before last round buybacks, the share count reduced by 3.114%.
When this round of buyback starts, the total share counts started at 15,182,822,584 shares. There is a net increase of 108,932,533 shares. This equivalents to 1172 shares per employee in 1 quarter. Any body has an idea, why the bank is so generous to use shareholder money to fat their own wallet? In percentage, this 1 quarter stock dilution has cost 22% of last round buybacks. Since we only have two buybacks a year and employees have 4 Q of compensation, does this mean 44% buyback would drop to the black hole of stock based compensation?
Thanks for bringing the historic perspective. My calculation has assumed no revenue and RoTE growth. The investment bank environment may improve in this 3 year period. US stock index has been running at all time high. There is a high chance a correction/high volatility period in next 3 years, which will further bump up the investment earning just like covid-19 period. Let's see how Venkat turns around the bank.
In past a few days, Morgan Stanley increased their price target for BARC from 235p to 255p. Morgan Stanley has always been on the optimistic side. Bank of America increased the target price from 160p to 170p. BoFA claims Barclay still has a tough problem to solve.
RNS news shows BARC started buy back yesterday. If price stays around 165p, BARC can buy back 606M ordinary shares for this round. For 3 years, they can reduce 3.64B shares and assume they issue 600M for employee incentive plan, net reduction of share counts will be ~ 3B shares. This will reduce the share counts to ~ 12B, TBV will increase to ~420p. They will make 42p to 50p a share after 2026. Dividend will also increase above 6% when they keep the total dividend amount constant.
10B GPB return equals to 40% of today’s market cap, and annual is near 14%. With 10% RToE, the bank will make 33.1p and roughly return 20p to shareholders and retain rest 10p for general business. By 2026, if Venkat can achieve 12% as they targeted, each year they will make ~40p per year. NAV will grow by two factors: 1) retained profit from each year; 2) reduced share counts. At 165p buyback price ~50% NAV, 6.6B buyback can reduce 26.3%. If no major market crash, a P/NAV will adjust 50-60% at minimum, luckily we may exceed 70%, which is ~235p.
BCS is down 5.3% when I type.
CPI number has not helped. My guess is the watchdog probe into motor financing just reopens the painful memory for BARC investor. The firm carries a series of wrong doings and fine. So my understanding is BCS drop today is linked with the probe.
MS outgoing CEO commented that their MA target would most likely in overseas.
7 years ago, MS market cap was similar to today's Barclay market capitalization. Since then, it has grown ~ 5x. With its current size, it is not hard for MS to absorb Barclays if regulations allow.
If UK is not a place to nurture the growth, let somebody else do the job. It is unfortunate but selling the icon financial asset from city will make UK as a country poorer. It is the results of leftist government policies plus many populous voters asked for. It is unfortunate but possible outcome for UK financial assets: chopping into pieces and sell to foreign companies.
When I type, BCS is trading at NYSE at $7.64 up 2%. I checked exchange rate, almost flat. This translates into 150p for BARC. Unfortunately, barc stock can not be supported by its home market. It is traded at 147.5p and up only 0.7% here.
Here is the direct link:
https://www.reuters.com/world/uk/britains-labour-party-reviews-financial-services-unleash-city-growth-2023-12-08/#:~:text=Britain's%20Labour%20Party%20reviews%20financial%20services%20to%20'unleash'%20City%20for%20growth,-By%20Huw%20Jones&text=LONDON%2C%20Dec%208%20(Reuters),polls%20predict%20it%20will%20win.