Barclays: Value Or Trap Following Q3 Earnings?

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Barclays PLC has shown improved financial performance in Q3 2024, but revenue and earnings growth may be challenging due to the expected declining interest rate environment.The bank's valuation ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBarclays: Value Or Trap Following Q3 Earnings?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-26 04:59 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4729754-barclays-value-or-trap-following-q3-earnings><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Barclays PLC has shown improved financial performance in Q3 2024, but revenue and earnings growth may be challenging due to the expected declining interest rate environment.The bank's valuation ...</p>\n\n<a href=\"https://seekingalpha.com/article/4729754-barclays-value-or-trap-following-q3-earnings\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BCLYF","symbol_name":"Barclays Plc","start_time":0,"source_url":"https://seekingalpha.com/article/4729754-barclays-value-or-trap-following-q3-earnings","article_id":"2478997466","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458634151/image_458634151.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2478997466","pubTimestamp":1729889969,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Barclays PLC has shown improved financial performance in Q3 2024, but revenue and earnings growth may be challenging due to the expected declining interest rate environment.The bank's valuation remain","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"BCLYF":"Barclays Plc","BCS":"巴克莱银行"},"translate_title":"巴克莱：第三季度盈利后的价值还是陷阱？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BCLYF":0.9,"BCS":0.9},"content_text":"Barclays PLC has shown improved financial performance in Q3 2024, but revenue and earnings growth may be challenging due to the expected declining interest rate environment.The bank's valuation remains low, trading at around 0.6x book value, reflecting structural issues and a more cyclical business mix compared to peers.Barclays' strategy includes streamlining operations, focusing on higher growth areas, and improving efficiency, but more aggressive steps are needed for a potential re-rating.Despite positive earnings and a strong capital position, Barclays' shares do not offer much value for long-term investors given current market conditions and profitability challenges.hatman12 Barclays PLC (NYSE:BCS) is trading at a relatively low valuation and has reported a positive performance in Q3 2024, but a re-rating of its shares is not much likelier ahead. As I covered some years ago, Barclays has improved its business profile following the global financial crisis and had, at the time, many improved fundamentals compared to previous years. As I've not covered Barclays for a long time and the bank has recently released its quarterly earnings, I think it's now a good time to analyze its most recent financial performance and update its investment case. We will see if it's a compelling play for long-term investors in the European banking sector. Business Profile & Q3 2024 Earnings Barclays is a U.K. bank that has exposure both to its domestic market and the U.S., plus it also has a global presence in its markets and investment banking business. Indeed, its main strengths are its strong position in retail and commercial banking in the U.K., an interesting position in the U.S. credit card segment, and it's one of the leading non-U.S. investment banks. Its current market value is about $46 billion, being one of the largest European banks by this measure. Its main peers are other European banks with a similar business mix, having both retail and investment banking activities, such as BNP Paribas SA (OTCQX:BNPQY), HSBC Holdings plc (HSBC), or Deutsche Bank Aktiengesellschaft (DB). Barclays' main operating segments are nowadays its U.K. retail bank, U.K. corporate activities, private banking and wealth management, U.S. consumer, and investment banking. Despite this good business diversification, a large part of its capital is allocated to global markets and investment banking. This has been the unit with the lowest profitability within the group, a profile that Barclays aims to change in the coming years. Indeed, around 64% of the group's risk-weighted assets (RWAs) are allocated to corporate and investment banking, while the bank wants to decrease this weight to around 50% by 2026. This means Barclays is expected to re-focus its activities, particularly in investment banking. Global markets and corporate banking are not expected to suffer much restructuring. This will reduce its capital consumption and improve returns in investment banking and for the group as a whole. Financial targets (Barclays) Beyond investment banking, Barclays also wants to simplify its organization and improve its efficiency, to achieve higher profitability levels over the long term. The bank has already taken some steps to streamline its business mix recently. It has sold a portfolio of performing mortgage loans (about £3 billion in loans) in Italy and reached an agreement back in July, with BAWAG Group AG (OTCPK:BWAGF), to sell its German consumer finance business. These two transactions are part of its strategy to streamline its operations and focus its capital on higher-growth businesses. Operationally, Barclays is also making further investments in technology to improve its customer service, reduce operational complexity, and lower its operational risk, which ultimately should lead to improved productivity and lower costs over the long term. To achieve this, Barclays is transferring more operations to the cloud, modernizing its platforms, and reducing legacy technology, enabling it to offer better solutions and improved customer service, which is key to distinguishing itself from competitors in the future. Regarding its most recent financial performance, Barclays has recently released its Q3 2024 earnings, which were above expectations both at the top and bottom lines. Its total revenues amounted to £6.5 billion in the last quarter, representing an increase of 5% YoY, supported mainly by higher revenues in its U.K. retail segment. However, during the first nine months of the year (9M 2024), its total revenues are basically flat compared to the same period of last year, at around £19.8 billion. This is justified by lower revenues both in its retail and corporate segments in the U.K., which have offset stronger revenue growth in private banking & wealth management and in the investment banking division. Indeed, global markets and investment banking have performed quite well in recent quarters. Stronger market volumes and higher activity in equity and debt underwriting led to a rebound in fees within investment banking, a trend that was also visible among its major competitors during the last quarter. Another positive factor for its resilient top-line has been its structural hedge, which is a common trend in the U.K. banking sector due to the prospects of lower rates ahead, as I've analyzed recently on NatWest Group plc (NWG). Banks have been preparing their balance sheet for a period ahead of declining rates by purchasing securities with longer maturities, reducing their NII sensitivity to rates. This move should lead to some net interest income (NII) resilience in the coming years. In Q3 2024, Barclays' gross income generated by its structural hedge amounted to £1.2 billion, and should be around £4.6 billion in 2024, which represents an increase of 28% YoY. For the next few years, Barclays expects this income to decline compared to 2024, which should represent a peak income year, but be moderately resilient to lower rates ahead. Structural hedge (Barclays) In Q3 2024, Barclays' NII amounted to £2.8 billion (+2% YoY), thus the contribution of its structural hedge was about 43% of its total NII, which is quite significant and should be an important factor for NII resilience in the upcoming years. Related to 2024, Barclays upgraded its NII guidance to more than £11 billion, compared to around £11 billion previously, showing that the impact of lower rates recently has been lower than what was expected some quarters ago. Regarding costs, the bank has been able to maintain strong cost control despite the inflationary environment, due to its initiatives to simplify the bank and improve operating efficiency, leading to stable costs over the past few quarters. In Q3, its total expenses were around £3.95 billion, stable compared to Q3 2023, and during 9M 2024, its operating expenses amounted to £19.8 billion, also stable compared to the same period of the previous year. Despite that, its cost-to-income ratio was 61% in Q3. This is not particularly impressive in the banking sector and is also significantly higher than compared to the most efficient banks in Europe (which have cost-to-income ratios in the 40-45% range). Thus, Barclays still has some room to cut costs and improve efficiency over the coming years. Regarding its asset quality, the group's overall performance has been positive given that loan losses remained in line with the bank's expectations during the last quarter. There were very low levels of losses in the U.K. and moderate losses in its U.S. consumer business. Indeed, its exposure to U.S. credit cards has been the segment showing weaker trends in recent quarters, being the major headwind to earnings growth at the beginning of 2024. Loan losses (Barclays) However, the loan loss ratio has declined over the past couple of quarters in its U.S. consumer bank, to slightly above 400 basis points (bps). This is close to its long-term average and shows that asset quality has remained relatively good recently, a trend that Barclays expects to continue in the coming quarters. Overall, the group's loan loss ratio was 37 bps in Q3 2024, practically stable compared to Q2, and 5 bps below Q3 2023. Despite better asset quality recently, the bank still expects its loan loss ratio to be between 50-60 bps through the cycle, which is above the sector average due to its higher exposure to credit cards than its closest peers. Regarding its bottom line because of higher revenues, stable costs, and slightly lower loan loss provisions, its net income amounted to £1.8 billion in Q3 2024, up by 18% YoY, and its return on tangible equity (RoTE) ratio was 12.3% (vs. 11% in Q3 2023). This profitability level is excellent and already higher than its 2026 target of being above 12%, which is a good signal that its strategy of achieving higher sustainable returns by improving efficiency and streamlining its business is bearing fruits. Regarding its capitalization, Barclays had a CET1 ratio of 13.8% at the end of last September. This is at the upper part of its target range of 13-14%. Thus, the bank seems well-capitalized and can distribute a good part of its earnings to shareholders in the near term. Indeed, one of its goals is to increase capital returns over the coming years, aiming to return about £10 billion through 2024-26, with a preference for share buybacks. This means its dividend is not expected to grow aggressively in the coming years, even though according to current analysts' estimates, its dividend should increase from £0.08 per share in 2023, to £0.106 per share by 2026. This represents annual growth of about 9% over the next three years, which seems achievable considering the bank's good profitability and capital position, and also due to its relatively low dividend payout ratio (29% related to 2023 earnings). Reflecting the bank's preference for share buybacks, its dividend yield is currently around 3.5%, which is below the average of the European banking sector, and shows that Barclays' income appeal is not great right now. Regarding its valuation, Barclays is currently trading at around 0.6x book value, which at first glance could be considered quite cheap, both in absolute terms and also compared to its closest peers. Indeed, this valuation is quite low considering its current profitability level and is also among the lowest ones in the European banking sector (the sector average is about 0.96x book value). Compared to its closest peers, it is also trading at a significant discount, given that on average its peers trade at about 1.8x book value. However, Barclays is trading at a premium to its own historical valuation of about 0.47x book value over the past five years. Its discount to peers is in line with its historical average, which are strong signal that its shares aren't particularly cheap right now. This means Barclays' low valuation is driven by structural factors, namely a relatively worse profitability level than peers over the economic cycle, and a business mix that makes its operations more cyclical than most of its peers. Therefore, while Barclays' strategy is focused on resolving some structural issues and has already sold some parts of the business that weren't core to its operations, this wasn't enough for a re-rating of its shares. More work needs to be done. In my opinion, the bank should be more aggressive regarding focusing its business in areas with higher profitability levels and better growth prospects. For instance, it could sell or perform an IPO of its credit card business and substantially reduce its presence in global markets and investment banking. This would lead to a more stable and less risky business profile over the long term and, potentially, a higher valuation for the remaining business. Conclusion Barclays PLC has released a positive operating performance in Q3 2024, but revenue and earnings growth may be difficult to achieve going forward considering the declining interest rate environment expected ahead. While its shares continue to trade at a relatively undemanding valuation, this seems to reflect the bank's fundamental issues. A re-rating of its shares appears to be unlikely in the short term. Thus, I think Barclays doesn't offer much value for long-term investors right now.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2478997466"}