Tuesday 11 June 2013

Analysis of Barclays

A well known British bank

Company: Barclays

Business: Financial services provider engaged in personal banking, credit cards, corporate and investment banking as well as wealth and investment management. A funny sentence that I found on their homepage "Barclays moves, lends, invests and protects money for customers and clients worldwide." I wonder what the difference is between a customer and a client? Is the money protection against thieves or tax offices?

Active: Global activity with presence in Europe, North and South America, Africa as well as in Asia. In total they are present in 50 countries world wide so in a way they are a diversification on their own.

P/E: -36.5

I decided to also in this case make two situations. One is based on the current situation for Barclays and the other one is based on their five year earnings. I started to follow Barclays when they were down at around 2.5 GBP and it is a pity that I did not jump on the shooter back then but as always for me... I don´t have enough cash for jumping when I would like to do so.

The stock price is from 10.06.2013

The Current situation:

The P/E for Barclays is negative due to the loss that they had last year. The price to book is looking very well with a ratio of 0.7. Earnings to sales also becomes bad and when we look at the book to debt the value is in line with other big banks. What is interesting is that the growth of Barclays since 2008 has been a over 7% which is very impressive! This then leads to a motivated P/E of around 23. They also never stopped to pay dividends but they did significantly decrease it in 2009 and currently pay out 2.25% which would not be sustainable in the long run unless they start to make a profit again.

The P/E5 situation.

The P/E5 looks much more interesting with a P/E below 10 add to this the P/B of 0.7 and we end up with a very clear buy according to Graham. The earnings to sales then also shows a very strong value of 15%. The growth of course remains the same and we see that the motivated P/E is around 23. The dividends are still at 2.25% but more interestingly it is then only 22% of their earnings meaning that they have a lot of room to push it up higher. One can also imagine that they will do that as soon as things look better to try to sugar coat the shareholders that have stayed with them during the crisis.

Conclusion: I look upon Barclays as a good stock to own. They will survive and hopefully the new guy they have steering the boat will make it more sober and still make a good profit for the shareholders doing so. It has indeed been traded cheaper but it is still a very cheap stock to buy even today if one believes they will manage to have well over 3 billion GBP in earnings again.

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