Barclays plc Ordinary 25p (BARC)

Company overview

Barclays PLC is a global financial services company headquartered in London. It is one of the world's largest banking and financial services group. It has operations in over 50 countries and territories across Africa, Asia, Europe, North America, and South America and around 48 million customers. It owns credit card business Barclaycard and has a strong investment banking arm in Barclays Capital and Wealth Management division to go with its high street retail presence. It employs over 140,000 people around the world. Its primary listing is on the London Stock Exchange and it is a constituent of the FTSE 100 Index. It has a secondary listing on the New York Stock Exchange.

HL Comment (31 October 2011)

The group's third quarter update (31Oct2011) exceeded analyst forecasts. Pre-tax profit before adjustments to the bank’s own debt instruments increased to £1.3 billion, up from £1.27 billion during Q3 2010 – analysts were expecting a figure nearer to £1.24 billion. Falling bad debt provisions (-34%) played a major part, with every division apart from its Investment Banking business (BarCap) generating increased profitability. During the quarter, the group’s European sovereign debt exposure was reduced by 31% to £8.0 billion Over the nine month period, pre-tax profit climbed to over £5.0 billion (£4.27 billion). As for the outlook, management noted that "capital markets remained difficult in October but had shown some improvement since the announcement by Eurozone leaders last week". The board also noted that "its retail, corporate and wealth businesses had performed broadly in line with their underlying trends seen for the first nine months of the year".

Negative Points:

• At the group's Investment banking business (BarCap), total income excluding an adjustment to the bank's own credit instruments held declined by 15% compared to 2010.
• As with rivals, a significant provision for the potential mis-selling of loan insurance (PPI) has been taken.
• At Barclays Corporate, bad debt provisions for its Portuguese business rose, given still weak credit conditions.
• A measure of efficiency, the group's cost: income ratio – costs expressed as a measure of income – rose to 67%, up from 66% in Q3 2010 – a fall in efficiency.
• The group's dependency on the UK economy has increased – the revenues derived from the UK increased from 41% last year to 42% for the nine month period this year.
• The regulatory outlook remains highly uncertain, with governments across the world still discussing the way forward. Senior management have previously reported that tougher regulations will result in lower group returns.
• The dividend payment remains significantly below that enjoyed before the onset of the financial crisis.

Positive Points:

• The relatively new Chief Executive has adjusted the Bank’s strategy. A plan to lift the return on equity (RoE) to 13% by 2013 from an unacceptable 7.2% last year is being pursued. Measures to cut costs, exit less profitable businesses and reshape the group's business portfolio are now being implemented. A number of planned job losses were outlined at the half year results. Adjusted return on average shareholders’ equity improved to 8.1% (2010: 6.5%) during the period.
• Management remains confident that the £1 billion cost savings target set earlier in the year can be exceeded.
• Bad debt provisions continue to decline. Credit impairment charges and other provisions fell 34% to £2.85 billion. Charges were lower across all businesses, most notably at Barclaycard and for unsecured personal loans and overdrafts at its UK retail banking business. Charges were lower for Barclays Corporate business, notably in Spain and the UK. Delinquency trends were stable or improving in the majority of retail portfolios.
• During the quarter, the group's European sovereign debt exposure reduced by 31% to £8.0 billion.
• The group's core tier one ratio of capital strength (financial cushion) materialised at 11.0%, the same as June 2011, compared to 10.8pc in H1 2010.
• The bank has expanded its securities unit in Europe and Asia after acquiring operations from Lehman Brothers in 2008.
• Barclays' geographical diversification and business mix remain broader than many rivals. The UK currently generates 42% of group income, North America 21%, Europe 16%, Africa and the Middle East 17% and Asia 4%.
• Unlike some rivals, a dividend payment continues to be made.

Consensus:

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.