Adam Davidson, CEO of Trident Royalties, discusses offtake milestones and catalysts to boost FY24. Watch the video here.
One month on from our upgrade, we review the main pushbacks, and why we remain confident Barclays will outperform in the next 6-12 months. We see upside to our CIB numbers, while consensus looks too low on CC&P and capital return for a stock trading on 5x PE and 12-14% yield.
1. CIB is a low multiple business and recovery in IB pipeline is fragile. Visibility in its markets business is low by nature, however trends so far are ahead, and our numbers are also assuming Barclays gives back some market share wins in 2024E. If this is not the case, our US colleagues' average 1% FICC growth forecast in 2024E would imply a 6% upgrade. Additionally, our +20% banking fee growth in 2024E still has fees 50% below peak in ECM (20/30% below in M&A/DCM).
2. If UK margin misses, it will drag the stock down anyway. We do see UK banks margins challenged, and worse deposit mix may well drive structural hedges lower again (see our UK banks preview). We are below consensus on BUK NII for this reason, however UK NII makes up c. 23% of group revenues and we see this more than compensated by higher revenues in both CC&P and CIB. For context we are 2% ahead on Barclays group PTP 2024E, vs. 5-10% below in Lloyds and Natwest.
3. Mixed track-record on costs. In BUK in particular, we believe there is room to cut costs but we have not included any significant cost cutting plan and keep c. 60% C/I throughout our forecasts vs.
I think both of you are too negative to the US market. The Friday intraday reversal is a powerful signal that end of year market will be pretty good and strong. There are a lot of money on sideline waiting for opportunities to enter US market. I'm not sure about UK market though. The US September job number is not as strong as surface. September full time job actually had a loss. The gain is from part time jobs, which exactly shows that FED policy has introduced stress to economy. They can wait and see, not to threat to increase interest further. The treasury yield increase is equivalent to another rate hike already (which is the main source for current correction). In most cases, FED rate hike is done.
VIX 18 is a medium value looking back from 1990 to today. You can not expect above 30/40 very often. You should buy when hitting 70/80 with both hands. There are money flowing into market regardless what happens. The 401k money is flowing into the market with every pay check. US company buybacks are still high and strong. These are the macro force driving US market up in a long term
Talking back to financial stock, the market is very selective. BAC went up 1c on Friday. News surfaces that they have $110B paper loss on the long term treasury bond, similar to Silicon valley bank situation, but BAC liquidity is not a problem. Worry is recapitalization and dilution to existing shareholders. Barclay 70% coming from US investment bank and credit card. It does not have the problem. Credit card loss is not a problem now with the job report.
50 DMA to cross 200DMA is the observing point. It is delayed a couple of months and looks like to happen around Q3 earning announcement. Barclays will discuss the strategic review from BCG by then.
Below is excerpt of Morgan Stanley research note. All positive upgrades coming from US card and investment bank. MS projected buyback increases to 1.5B GPB and may hit 2.0B GPB. US credit card profit has pretty large room to grow.
US cards - a matter of scale. We benchmark Barclays' US credit card business with our US Consumer Finance analysts, Betsy Graseck and Jeff Adelson, using local subsidiary accounts. Our conclusion is the company is quietly gaining more scale in this business, which should improve the profitability gap vs. peers (6% ROTE 2023E vs. an average >20% for local specialists). Together with its push in wealth, our upgraded 2024/25E revenue estimates are >8% ahead of consensus in CC&P.
Stabilizing rates improve M&A pipeline. Peak rates sentiment has improved the deal pipeline, and Dealogic data shows activity is starting to come through, in particular in ECM. On the back of this, we raise our revenue estimates 3-4% in CIB and now expect revenue growth in 2024/25E. This compares to our more cautious view on UK margins, where we are below consensus. We see downside risk to margins across the UK, including BUK/Natwest/Lloyds/VM.
Capital efficiency to increase payout. We estimate the hung leverage finance deals added £10-15bn of RWAs in the IB in 2022 and are largely still on balance sheet. A gradual unwind of these deals, together with announced/potential disposals, could pre-fund expected Basel 4 impacts and allow increased payouts, on our calculations. We raise our share buybacks to £1.5bn per year (12% total yield) from £1bn before, and see upside to £2bn per year if the deals are completed (14.5% per year).
Upgrading to Overweight. We acknowledge both the IB and US cards are low-multiple businesses, but, on 0.5x TBV for a 10% ROTE 23/24e, we believe earnings upgrades will drive the stock. Its discount to UK peers is also explained by the lower yield, which we expect to be addressed as RWA growth surprises positively.
Barclays Seen With Improved Revenue, Returns Outlook -- Market Talk
Mentioned: BCS
0900 GMT - Barclays' outlook for revenue and payout is improving and this is likely to drive the stock, Morgan Stanley says in a note. "We think consensus underestimates the revenues in [consumer, cards, and payments, or CC&P], which, together with an improved outlook in the [investment banking], leaves us ahead of consensus for the first time," analysts write. There is room for capital efficiency to increase payouts, they add, noting they don't expect the British bank to outline an extensive cost-cutting plan at its fourth-quarter strategic update. The broker raises its rating to overweight from equalweight and its target price to 230 pence from 190 pence. Shares climb to the top of the FTSE 100 in morning trade, up 3% to 158.3 pence.(elena.vardon@wsj.com)
Correction: it is actually 160M shares. 20M RSU and 140M options. Worse than the number I posted.
This is too much. They only bought back 210M shares till today. Now Barclays issues 140M shares and options for employee incentives. The net buybacks is only 70M shares, a tiny drop of shares. This is equivalent to steal money from shareholders.
~~~
7 Sep 2023 09:00
RNS Number : 6365L
Barclays PLC
07 September 2023
07 September 2023
Barclays PLC - Block Listing
Barclays PLC (the 'Company') announces that an application has been made to the Financial Conduct Authority and the London Stock Exchange for the block listing of 160,000,000 ordinary shares of 25 pence each in the capital of the Company (the 'Shares') to trade on the London Stock Exchange and to be admitted to the Official List.
The Shares will be issued and allotted under the Barclays Group Share Incentive Plan (20,000,000 Shares) and the Barclays Group SAYE Share Option Scheme (140,000,000 Shares).
When issued, the Shares will rank equally with the existing issued Shares of the Company.
Admission is expected to be effective on 08 September 2023.
- Ends -
@TheReducer, I'm sorry for your paper loss. And I share your frustration on BARC's painful 15 year down trend. My investment history is shorter than yours. My 1st tranche of BARC purchase was more than 8 years ago. I traded in and out a little without much to show off, which is a high opportunity cost since I live in the US and there are many other good stocks to buy. My current holding through 3 of my investment accounts is almost break even now. The tranche I bought after 2020 crash offered some help.
Barclays stock is hovering around 6% 2023 full year dividend yield (per company's 8.6p full year estimate) or 6.7% of 2024 full year and 7.1% 2025 dividend yield.
I read Bank of America, Morgan Stanley and other analyst reports on Barclay stock. The brokerage houses are negative or at best neutral to Barclays. The near term risk is high loan loss from upcoming recession. The investment bank occupies a large portion of risk asset (~70%). The return on investment bank is very volatile and current return (~10%) from investment bank can not make up the capital cost (14%). To be honest, I don't believe their argument and the data. My points are:
(1) Yes, investment earning is volatile. But it did extremely well during pandemic. BUK was losing money but investment bank provided bump return to maintain Barclays profitable. Why cann't the investment do the same again during the upcoming recession? It is not fair and not accurate to only look at the down side of investment bank or retail bank.
(2) Even with only 10% ROIC, overall earning is still quite healthy. The bank does not really pay 14% to the investment capital cost. Their senior bond notes are somewhere 5-7% at most. On top of that, the low cost deposit provides another cost reduction to overall cost. 14% is more like a theoretic calculation to assume all investment bank capital is borrowing currently from market at a hefty premium rate.
Barclays is the only left EU banks to compete in the investment business with US banks. I don't know and do not want to speculate if there are hidden agenda underneath. As long as the management can maintain current dividend and buyback rate, I'm happy about it. Warren Buffet said stock market is a mechanism of transferring wealthy from impatient investors to patient investors. With the help of dividends, I'm willing to stay in the patient camp for Barclays stock.
Anybody knows where BARC net short interest publishes in UK? In US, the net short interest were tallied and published every two weeks. But I can not find the information in UK for BARC. There are only small net short interest on BARC ADR (BCS).
I looked recent trading volume. Daily buybacks ~8M shares is about 40% trading volume in recent days. Yet the stock price can still drop. Naked short sellers must be crazy to do so. With 15 trading days, Barclays has retired ~ 0.67% total shares.
Remember Barclays has only TTM PE 4.22x. As long as they keep on such buyback pace, the shorts will be burnt very badly.
You can read the article from Guardian about the root cause. https://www.theguardian.com/business/2013/jul/30/barclays-cash-call-6bn-capital-gap
The highlight listed below:
Plugging the £12.8bn gap
£6bn Rights issue: a cash call on investors which will not be launched until September and will raise £5.8bn after fees paid to other banks, which are guaranteeing the fundraising
£2bn Issue of bonds: a relatively new form of bond called contingent convertibles, dubbed co-cos, which convert to shares during times of crisis.
£2.5bn Shrinking the bank: by reducing the size of the bank's balance sheet by 2014 Barclays can reduce the amount of capital it needs to hold by this amount
£2.5bn Retaining earnings: the bank will keep a larger portion of the money that it makes between now and June 2014. The cash might otherwise have been paid out in dividends to shareholders or as bonuses to staff.
This tragic increase of shares counts explains why the stock price behaved so poorly since 2008 crash. A quick rebound after 2009 was given a second capital gap hit. Confidence to the bank had been devastated then. Since then, changes of CEOs, wrong doings in forex, punishment from government agency et al formed a string of sad trajectory of a "glory" 325 year UK bank.
I dug out the historic BARC 25p shares outstanding as listed below:
Year 25p (M) Pct
2006 6,535
2007 6,535 0%
2008 8,372 28%
2009 11,412 75%
2010 12,182 86%
2011 12,199 87%
2012 12,243 87%
2013 16,113 147%
2014 16,498 152%
2015 16,805 157%
2016 16,805 157%
2017 16,805 157%
2018 17,133 162%
2019 17482 168%
2020 17668 170%
2021 17420 167%
2022 16876 158%
2023 15556 138%
2023Dec esti 15072.12903 131%
The substantial dilution came at 2008-2009 Qatar capital injection 3B GPB and 2012-2013 5.6B GPB capital raise. The price of conversion were 180p-195p.
Using a linear extrapolation and 155p price, Barclays needs 10 year continuous 1.2B GPB buybacks to reach the same shares outstanding as 2008. There is a long long way to go.
Hi Mike,
In general, buybacks and retirement fund are two main force for total US market growth better than rest world market. They should be beneficial to stock price. If you look at BAC, they diluted share counts to 10B shares in 2012 and they were forced to borrow $5B from Warren Buffet to increase its capital. In following a few years, they bought back aggressively and total share counts reduced to 7.97B now. And the stock price jumped from $5 to $30 and never looked back.
If Barclays reduce share count to the extent of 2012 (1.87B ADR). Per share dividend will be more than double from 8,6p to 18p. I believe stock price would be completely different from today's 150p.
I was hoping Barclay can bounce back to at least match LSE 155p. There were no bounce today and now it dropped 8.5% already, too bad. Barclays management (BOD as your post mentioned) has lost confidence to wall street. It looks pretty painful days in short term.
Best
JY.
The only positive for this stock price crash is 750M GPB buybacks increases the net percentage from 3% to 3.1% of total Barclays market cap. This is a substantial amount and it will provide stock price support once the buyback kicks in.
BCS is down 6.63% in US market now. Wall Street is washing down the weak hands even strongly. I hope it can recover from this deep dive. UK NIM is only 30% of NIM from Barclays. In US, their card business is making good money.
It is unfortunate that Barclays is a UK bank. Barclays produces 68% revenue from US. 1H 70% revenue comes from US, while Barclays stock behaves poorer than regional banks. Its ratio is also far worse than US investment banks, such as GS. London stock market has no constant stream of retirement fund purchasing stock (like 401k fund). The bank is still timid in buy backs and focuses on investment. Total half year return is only 37% net income. Considering full year, it may reach 50%. Sorry for Barclays shareholders. UK banking needs a lot social and political support, which is the only industry stand alone. All other major industry in the country has been sold or in small pieces. A revamp of 401k system in the county will generate fortune for every workers. Let the politicians stop talking wind fall and interest pass through. A strong financial industry is the foundation of a country's success.
Now dividend is only 2.7p. Full year would be 8.1p below estimated 8.6p. Yield is still below 5%.
Buybacks only 750M GPB, also lower than expected 1B GPB mark. I don't know what market will respond. Earning is a beat. 8.6p is ahead of estimated 7.9p. TNAV dropped from 301p to 291p. I have not figured out why the drop.
A disappointing management will probably use the excuse of macro economy uncertainty and inflation headwind. If so, the stock may be hampered in short team.
My own AI script predicts ~3.5% increase in the coming 7 trading days. In US ADR, it is $8.73. Note the AI model prediction accuracy is hovering around 50%. So it is comparable to flip a coin.
Based on US peer bank earning, investment bank earning on FICC, deal making all went down 20% or more. NI will increase. Current US ADR estimate, Q2 earning 41c/ADR, or 7.9p. Full year estimate is 32p. 2H total income estimate is ~12.8p (Q3 and Q4 combined). The number does not show much growth in 2024 as we. UK is a much tougher environment for large banks. US large banks amassed $76B net interest income and large banks still do not increase deposit rate. For savory investors, they just directly buy treasury bond, which can easily get yield above 5%. There is no government push for passing high deposit interest rate and windfall tax. US knows that big banks have to get funding to provide stable service to economy. You can not cut the earning from banks and expect them to be stable on difficult times. Economy always have cycles. Government should just open ways for average person to buy UK treasury bond, not let the labour parliament members talking silly about windfall tax and pass through interest. Give people the freedom to do by themselves and not let politician to run the show.
BARC is going nowhere. The board chairman mentioned that higher return to investors would help valuation. But the company has no action to announce buybacks and issue a quarterly dividend like HSBC. The company has dominant revenue stream from US. Why don't they split up the company into BARC US and BARC UK stock separately. Holding this stock is a pain when you see other stock and US index are moving daily.
I think it is possible to get 9p dividend and £1-1.2B buybacks.
Barclays returns roughly 50% to investors through divi and buybacks. For remaining 3Q, if they achieves 9% RToE. Annual profit can hit 31.6p. Applying 50%, they can afford 9p with 1.06B left for buybacks. The key is that BARC does not incur new surprise and world economy does not run into deep recession.