Barclays share price: what to expect from 2018 results

When is Barclays’s earnings date?

Barclays will report its 2018 annual results on Thursday 21 February at 7:00 GMT.

Barclays results preview: What does the City expect?

Barclays has made a noise about how its diversified model makes it resilient in the face of global uncertainty – whether it be the US-China trade war, Brexit, or the slowdown in economic growth. Barclays has many arms, with personal, corporate and investment banking units, plus credit cards and wealth management services. Led by chief executive Jes Staley, Barclays has said its versatility – with no single activity accounting for more than 22% of income – means it can focus on improving shareholder returns despite the headwinds on the horizon.

But not everyone agrees with the bank’s strategy, including activist investor Edward Bramson who is pushing for Barclays to pull out of activities such as fixed-income trading and equity investing like almost all its European peers who have left the market to the US banks that dominate.

Bramson is campaigning to win a seat on the bank’s board at a crucial annual general meeting (AGM) later this year, so Barclays will be eager to show that its strategy is working and that calls for major changes aren’t necessary.

Analysts expect income to rise and costs to decline in 2018, leading to improved profitability.

Barclays 2018 annual results consensus expectations

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What to watch out for in Barclays’s 2018 results

1. Change in guidance
2. Cost reduction
3. Dividend
4. Litigation and PPI
5. Brexit
6. Corporate and Investment Banking

Change in guidance

Barclays has said return on tangible equity (RoTE) – a key metric to measure improving returns – should be over 9% in 2019 and 10% in 2020, based on a common equity tier 1 (CET 1) ratio of 13%. Reporting its third quarter (Q3) results, Barclays said RoTE was 11.1% compared to negative 3.6% over 2017. The CET 1 ratio stood at 13.2% at the end of September.

Cost reduction

Barclays managed to grow revenue 3% more than costs over the first nine months of 2018 (known as jaws). All of its peers are trying to achieve this and any improvement in the final three months of the year will be welcomed by investors. In order to return to more cash to shareholders and free up capital for investment Barclays is aiming to reduce operating costs to £13.9 billion in 2018 from £14.2 billion in 2017. Savings are being made by standardising IT systems, replacing branches with less labour-intensive digital services, and insourcing key tech staff. The budget for 2019 should be between £13.6-£13.9 billion based on the bank’s current guidance. The cost to income ratio fell to 62% over the first nine months of 2018 compared to 64% the year before, working its way toward a goal of getting it below 60% 'over time'. However, it was higher in Q3 than the rest of the year, so it is worth looking at the ratio for the final three months of 2018.

Dividend

Barclays has vowed to pay a dividend of 6.5 pence for 2018, more than double the 3.0p paid in 2017. It has not yet outlined how much it plans to pay this year, so any details will be key for shareholders. The company-compiled consensus shows a share buyback is unlikely, but not off the table. The bank said last year that it had been 20 years since it last used share buybacks as a means of returning value to investors but said they would become 'an important part of the capital return mix going forward". There are higher expectations that Barclays will launch a share buyback in 2019 worth £455 million, according to the consensus, and grow it to £720 million in 2020.

Litigation and PPI

Although Barclays reported a 23% rise in adjusted pretax profit over the first nine months of 2018 to £5.3 billion, reported pretax profit was down 10% to £3.12 billion after accounting for the £1.4 billion settlement with US Department of Justice (DoJ) and a further £400 million provision for Payment Protection Insurance (PPI) claims. The sum paid to US authorities relates to the sale of mortgage-backed securities ahead of the 2008 financial crisis and should disperse what was a dark cloud hanging over the business. The PPI provision was booked in Q1 2018 after experiencing a higher-than-expected number of claims. Barclays says its provision for the remaining time before the PPI deadline on August 29 2019 of £1.1 billion is adequate, but admits it is monitoring it closely.

Brexit

Barclays started to put Brexit plans in motion back in 2017 and says it is fully prepared even if the UK exits the EU without a deal on 29 March 2019. It has already transferred its European branches in the likes of Germany, France and Italy from its UK operations to Barclays Bank Ireland to ensure it can continue to serve European clients, and says its enlarged Irish operation will be up and running in time.

Virtually all banks operating in the UK have had to do some shuffling of assets to mitigate the threats posed by Brexit, particularly a no-deal scenario. Barclays won approval from the UK High Court to transfer £190 billion worth of assets to the Irish subsidiary because of the uncertainty caused by a no-deal Brexit. Barclays has said it intends to continue operating a European branch network, but said operations will primarily consist of corporate investment, private banking, the Barclaycard business in Germany and an Italian mortgage portfolio.

Barclays UK chairman Gerry Grimstone revealed the bank had spent somewhere between £100 to £200 million preparing for Brexit, arguing Barclays was more cost-effective than rivals like Bank of America, which recently reported it had so far spent $400 million on shifting staff and operations to Dublin and Paris. Brexit is a key example that Barclays cites as to why it needs its diversified business model, but it is still very exposed to the UK. Barclays UK accounts for only 36% of revenue but once UK sales are taken into account within its International division the country actually accounts for 51% of income, with Europe accounting for at least another 10%. Plus, Barclays UK is markedly more profitable with a RoTE of 22% than Barclays International’s RoTE of just 9.2%.

Corporate and investment banking

Both US and European banks have significantly downsized their corporate and investment banking operations since the financial crash and Barclays is now the UK’s last global investment bank and one of just two major European players left, alongside Deutsche Bank. One of the reasons Bramson is calling for Barclays to sell-off or downsize its business is because the market is tough and peers like Deutsche have been struggling, but Staley has vowed protect the unit from further job cuts. His commitment has proven fruitful so far and at least relieved the pressure if not garnered support.

Markets is the single biggest revenue driver of the business (accounting for 22%) and in Q3 revenue from equity trading jumped 35% while fixed-income trading rose 9.7%, supporting the CEO’s view they are key parts of the business and not a burden as described by Bramson. Staley triumphantly pointed out in the Q3 results that Barclays had managed to gain market share in investment banking for four consecutive quarters and shrugged off criticism that European banks couldn’t compete with US rivals, even if they remain considerably larger in size. Although Staley has the upper hand at present there is reasoning behind Bramson’s concerns – RoTE is less than half what it generates from the likes of credit cards and consumer banking, and risk-weighted assets (RWAs) are more than double that of its retail arm.

Bramson owns around a 5.5% stake in Barclays through his investment vehicle Sherborne Investors, making him one of the largest individual shareholders. He has tabled a motion for the AGM on May 2, when shareholders will vote on whether to appoint Bramson to the board of directors. The bank’s investment plans include major sums being ploughed into electronic trading platforms and bringing digital corporate operations under one system, but it will have to show the business kept up momentum in Q4 2018 and keep it up throughout the first half of 2019 to stave-off the threat posed by Bramson joining the board.

Barclays share price analysis

Barclays has underperformed its peers over the last year with shares experiencing deeper falls than Lloyds, Royal Bank of Scotland (RBS) and HSBC. Barclays shares have also failed to rebound as much since the start of 2019.

Banking shares: Barclays vs Lloyds vs RBS vs HSBC

Shares in all four banks hit new lows in December before starting to regain the lost ground. Barclays shares fell to their lowest level for two-and-a-half years on 27 December but have since risen 8.2%.

Barclays shares: technical analysis

The downtrend from the April highs is intact, with the bounce from the December lows hitting resistance at 165p and creating a lower high. But there is perhaps a glimmer of hope, as the price dropped back to 155p but found support in this area. If this is a lower high, then we look for a push back to 165p and then a move to 177p and the highs in the 175p/180p zone of November. This would create a new higher high and reinforce the impression that the trend has changed direction. A close back below 155p is bearish, and would suggest the price is headed back to 145p, the lows of December.

In the short term, the price has trended lower from the January high, with lower highs seen since 21 January and 165p.

However, while this downtrend continues, the lower low of 11 February was only slightly lower than that of 1 February, indicating a possible relaxation of bearish momentum. This potential bearish wedge should be watched ahead of results as the price moves back towards 160p.

How to trade Barclays’s annual results

A Thomson Reuters poll of 22 analysts shows there is a long-term average buy rating (as of 13 February 2019), but a significant number of brokers believe the bank is adequately-or-over-valued. Recommendations have been left largely unchanged over the last three months.

Barclays shares: broker recommendations

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Barclays earnings: if it ain’t broke don’t fix it

Amid pressure from an activist investor, Barclays will be keen to prove that its current diversified business model is appropriate not only to protect against threats but to grow the business and shareholder returns. With potential that Bramson could join the board after the AGM later this year, Barclays has to keep up the momentum and prove the doubters wrong or more shareholders could begin to call for major change.

Barclays should deliver improvements in 2018, albeit held back by costly litigation, and shareholders will be sweetened with the dividend hike. But will it be enough to win support?

The long-term broker rating for Barclays sits at buy but, although there are only a few that think the bank is overvalued, there is a notable number that believe Barclays shares are adequately priced.