Barclays Plc (LSE:BARC) shares soared about 30% in 2021. However, these gains were ultimately reversed in 2022, with the stock price falling by around 15%. And this downward trajectory seems to have continued into the first quarter of 2023, falling by another 4%.
What’s going on?
As a quick reminder, Barclays is one of the largest banks on the London Stock Exchange. Since being founded in July 1896, the financial institution now serves 48 million customers worldwide, with its headquarters in London1.
With interest rates on the rise, lending institutions are starting to enjoy a more favourable operating environment. In fact, as the cost of debt increases for consumers and businesses, the banking profit margins theoretically should increase. Therefore, is the recent downward trajectory in the Barclays share price actually a buying opportunity for my portfolio?
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Recap on 2021 full-year performance
2021 was a remarkable year for Barclays and its shares. At least, that’s the impression I got when looking at its 2021 results.
All the operating divisions of the company delivered double-digit returns for 2021. Barclays Corporate & Investment Banking (CIB) divisions reported profits. And its Consumer & Payments businesses benefited from economic recovery. So much so that dividends were raised from 1p in 2020 to 6p.
Generally, when management increases the dividend, it indicates confidence about the future, so this is an encouraging sight, in my opinion.
While commenting on the results, Barclays Group’s CEO, C.S. Venkatakrishnan, said,
“Having set out to build a bank able to deliver double-digit returns through the cycle, we delivered a double-digit RoTE of 13.4%, a resident, growing and well-capitalised balance sheet with a CETI ratio of 15.1%, and a strong profit before tax of £8.4 billion even amidst the uncertainty of the global Covid-19 pandemic.”
Strong 2022 results for Barclays shares
Despite Barclays shares falling 15% in 2022, the company actually managed to deliver strong results in 2022. At least, I think so.
Pre-tax profits came in at £7.0bn, with a return on tangible equity (RoTE) of 10.4%. Both were ahead of analyst expectations. And encouragingly, RoTE is in line with management’s target, indicating good leadership skills. Looking specifically at the growth of Barclay’s three operating businesses:
- Barclays UK 18.7%
- Consumer Cards & Payments 10.0%
- Corporate & Investment Bank 10.2%.
Kudos to the higher interest rates, Barclays’ income popped up by 16% year-on-year. And this trend may only just be getting started. The firm’s net interest margin (NIM) is expected to be greater than 3.20% in 2023. Time will tell whether this target will be reached. But so far, management has demonstrated its ability to deliver on its milestones.
Speaking on the results, the CEO commented,
“Barclays performed strongly in 2022. Each business delivered income growth, with Group income up 14%. We achieved our RoTE target of over 10%, maintained a strong Common Equity Tier 1 (CET1) capital ratio of 13.9%, and returned capital to shareholders. We are cautious about global economic conditions but continue to see growth opportunities across our businesses through 2023.”
Barclays Q1 2023 results
Barclays, in the words of its CEO, had a strong quarter as the bank’s income went up 11% to
£7.2bn. This, to me, is a continuation of its strong performance seen in 2022. That said, here are the
important numbers I took note of.
Net profit came in at £1.78bn ($2.2bn), beating Reuters analyst estimates by 27% year-on-year.
Each of the divisions saw growth, at least.
Barclays UK income was up by 19%, while the bank’s Consumer, Cards and Payment divisions
rose by 47%. These compensated for Corporate & Investment Bank, which reported 1% growth.
In light of this robust performance, is there a solid bull case for Barclays shares?
A bull case for Barclays shares
Investors like me love businesses that deliver on promises. In my opinion, Barclays’ strategies set out in 2016 are finally yielding fruit.
The group has beaten earnings and revenue estimates consecutively for eight of the past ten quarters. However, while it has managed to achieve some stellar performance, it has not been reflected in Barclays’ shares. This potentially indicates that a buying opportunity may have emerged.
Barclays’ new Chief Executive Officer has set three priority areas for the company:
- To deliver next-generation digitised consumer financial services.
- To deliver sustainable growth in the CIB and Capture opportunities.
- To transition to a low carbon economy.
Time will tell how these new strategies could impact the bank. But in the meantime, there are some risks to consider.
Challenges that lie ahead
Barclays shares have gone through tough times in recent years. With the emergence of digital banks and Decentralized Finance (Defi), the banking sector is getting more competitive.
Aside from that, Barclays has continued to have lower profits from its lending divisions. This seems to be slowly reversing now that interest rates are back on the rise. However, with the cost-of-living crisis still plaguing the UK economy, there is a notable risk of higher loan default rates.
Needless to say, both of these risks are pretty substantial and are likely contributing factors to why the stock has failed to maintain its upward momentum in recent months.
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Are Barclays shares a good investment?
During the current year, Barclays shares tanked by 4%. It seems the sharp sell-off seen in 2022 has not abated. And looking at the latest results, I think it’s clear to see why.
The higher interest rates have helped to increase the company’s income. As the rates remain high, the big bank is expected to benefit from it. However, while this is obviously beneficial, more loan defaults are causing increasing concern. And debt on credit cards, in particular, could become overwhelming for some households.
Nevertheless, I’m confident in the long-term potential for this bank stock. There could be further volatility on the horizon, so I’m keeping it on my watchlist for now. However, once a clearer picture begins to form throughout this year, I may be tempted to buy some Barclays shares for my portfolio if the valuation remains depressed.
Learn more about Barclays
- Barclays Dividend Forecast: 2023, 2024, 2025, 2026 Analyst Predictions
- Barclays and Lloyds: 2 UK Bank Stocks to Watch
- Are exchange-traded notes (ETNs) a massive ongoing fraud?
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Article sources
Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.
