Barclays share price could struggle ahead of H1 earnings

Barclays is set to unveil its half-year (H1) results on Wednesday 29 July, with the bank’s share price likely to come under pressure despite analysts remaining optimistic about the stock in 2020.

Over the last three months, the average share price target for Barclays sits at 144p, implying a potential upside for the stock of 28%.

However, the lender has an uphill battle throughout the remainder of 2020 and is likely to struggle to lift its share price to such levels over the next four months.

For starters, Barclays has cancelled its dividend, which was previously yielding 10% for shareholders and, therefore, represents a significant loss for income-seeking investors. Furthermore, the lender is expecting a signifcant rise in bad debts and historically low interest rates continue to put pressure on margins for it and its peers.

Barclays share price is trading at 112p per share at the time of publication, with the stock down 39% year-to-date.

Barclays strengthens capital ratio to protect against rising bad debts

Ahead of its H1 results, Barclays announced that its core capital ratio will be stronger-than-expected at the end of the second quarter (Q2).

The UK-based lender said that it expects to report a common equity tier 1 (CET1) capital ratio of around 14%, which is higher than previously forecast.

The higher than expected ratio will be viewed favourably by investors, with it offering greater protection for the bank from a rise in bad debts brought about by Covid-19.

‘The challenging income and impairment conditions for the consumer and corporate businesses, and continuing strength of markets income,’ Barclays said in a statement ahead of its H1 results.

‘In the second half of the year there may be headwinds to the CET1 ratio from procyclical effects on RWAs and reduced transitional relief on IFRS9 impairment.’

The bank also warned that its upcoming H1 results have been impacted by the challenging trading conditions. The news will unlikely shock investors, with Barclays seeing profits fall by more than a third in Q1 after the lender was forced to set aside more than £2 billion to cover potential debt write-offs caused by the global pandemic.

Barclays: technical analysis

On the chart, after the sharp sell-off which kicked off in December last year, the stock has been trying to recover since mid-March, according to Victoria Scholar, market analyst and presenter at IG.

‘In June it stumbled at the 50% Fibonacci retracement line and has since been stuck in a range just below the 38.2% fib line,’ Scholar said. ‘We can see the Bollinger bands have been narrowing recently amid low volatility.’

‘This 'squeeze' suggests we could be poised for a sharp move in either direction ahead for the stock,’ she added.

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