RE: Barclays madness21 Oct 2021 18:59
A few points to note:
Jes Staley and Tushar Morzaria advised they weren't surprised by the initial drop on results day and it can be typical as professional investors take to profit taking. But todays drop shouldn't be a worry as the stock is still bearish and will continue to climb.
Buybacks - There have been two major buybacks this year. One of £700m at year end results for 2020 and recently the still 'ongoing' £500m buyback. These are being bought every day at market prices and there is a limit on the volume of shares traded per day that can be bought. So it's not as simple as saying we'll buy £500m @£1.70. They have to buy gradually each day and the price has recently crept up. But even @£2 per share they're being bought back cheap when compared to the net asset value for each share of £2.87. If the share price was above that then shareholders would be better served getting excess capital back as a dividend (noted some would just prefer that anyway but that's not my talking point)
The example quoted by the CEO was this, "Essentially right now if our stock is worth £1 we are buying back at 70 pence. So you are getting that 30 differential for free. That is why buying stock back is so attractive"
Whilst he was using those figures to explain the banks approach I actually think we're getting a far better deal on the two buybacks over the last year.
In terms of progress, the bank has had a target for a number of years of a 10% return on equity. The last few years they have fallen short of that target. We're on the 3rd quarter this year and the figure is already at 15%. So even if Q4 is really bad they will comfortably hit that target of 10%. The bank is well positioned now to hit a 10% return on equity year in year out.
Dividends - The bank has announced at the interim results that they will pay a dividend on a progressive basis. So that has already been confirmed as 6p for 2021. They will pay a slightly higher dividend in 2022 and slightly higher again in 2023. The aim is to have a dividend that grows with the growth of the bank every year and that it is very consistent. So if in 2021 the bank has made 35p per share and it has paid out 6p in dividends then there is a lot of room for a progressive dividend over the coming years. A consistent buyback program in support of this and a consistent return on equity of 10% then the stock will grow.
Back to a point in an earlier post, you only have to look at the experience of the major US Banks. They were all trading at this sort of level two years ago, but they kept generating levels of profitability that Barclays is now looking at. So I believe the markets will eventually, within a couple of years value Barclays above it's net asset value which is what we were used to pre-financial crisis.
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