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Barclays' (BCS) Restructuring Aids in Uncertain Capital Market
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Barclays PLC (BCS - Free Report) is well-poised for growth on the back of its restructuring efforts, along with the company’s strategic initiatives to simplify the business structure. Moreover, the company’s efforts to mitigate expenses are expected to keep aiding growth and drive operating efficiency.
However, uncertainties regarding the performance of the capital market make us apprehensive. A persistent rise in credit impairment charges is another major concern for the company as it might hurt financials.
Thus, analysts are not very optimistic regarding BCS’s earnings growth potential. In the past 30 days, the Zacks Consensus Estimate for the company’s 2024 earnings has been unchanged. Barclays currently carries a Zacks Rank #3 (Hold).
Looking at its fundamentals, while BCS’s total operating expenses increased in 2022, 2023 and the first quarter of 2024, the metric declined seeing a compound annual growth rate of 2.4% over the six years ended 2021. Overall expenses are expected to remain manageable in the quarters ahead as business restructuring initiatives continue to offer support.
The company intends to undertake cost-saving actions to improve efficiency. Driven by the structural cost actions taken in 2023 and ongoing efficiency investments, savings of £1 billion are expected in 2024, with a payback of less than two years. By 2026, management expects total gross efficiency savings of £2 billion and cost-to-income ratio in the high 50s.
Moreover, Barclays has been striving to simplify operations and focus on core businesses. In July 2024, the company announced the divestiture of its German consumer finance business, while in April, BCS announced the disposal of its Italian mortgage portfolio.
In February 2024, the company announced the sale of $1.1 billion in credit card receivables to Blackstone’s Credit & Insurance segment to bolster lending capacity for Barclays Bank Delaware in the United States. In the same month, the company announced a deal to acquire Tesco’s retail banking business, which is expected to complement its existing business and strengthen BCS’s position in the market. Driven by these initiatives, Barclays’ profitability is expected to improve over time.
BCS has been paying dividends on a regular basis. It plans to return at least £10 billion of capital to its shareholders between 2024 and 2026 through dividends and share buybacks, with a continued preference for buybacks. The company’s board of directors initiated a share buyback of up to £1 billion starting first-quarter 2024. Management looks to reward its shareholders through capital distribution of roughly £3 billion in 2024 under the plan. Thus, driven by a solid balance sheet position, the company’s capital distributions will help enhance shareholder value.
However, the company’s net interest income (NII) and net fee, commission and other income have been witnessing a volatile trend in the past several quarters, owing to a challenging operating backdrop. While NII witnessed a marginal increase in the first quarter of 2024, net fee, commission and other income declined. Though structural hedges are anticipated to offer some support to NII, the uncertainty about the performance of the capital markets might weigh on the company’s top line.
BCS witnessed a significant rise in credit impairment charges in 2020. While there was a credit impairment release of £653 million in 2021, the metric increased again in 2022. Credit impairment charges are expected to be elevated in the near term because of the expected economic slowdown.
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Barclays' (BCS) Restructuring Aids in Uncertain Capital Market
Barclays PLC (BCS - Free Report) is well-poised for growth on the back of its restructuring efforts, along with the company’s strategic initiatives to simplify the business structure. Moreover, the company’s efforts to mitigate expenses are expected to keep aiding growth and drive operating efficiency.
However, uncertainties regarding the performance of the capital market make us apprehensive. A persistent rise in credit impairment charges is another major concern for the company as it might hurt financials.
Thus, analysts are not very optimistic regarding BCS’s earnings growth potential. In the past 30 days, the Zacks Consensus Estimate for the company’s 2024 earnings has been unchanged. Barclays currently carries a Zacks Rank #3 (Hold).
Looking at its fundamentals, while BCS’s total operating expenses increased in 2022, 2023 and the first quarter of 2024, the metric declined seeing a compound annual growth rate of 2.4% over the six years ended 2021. Overall expenses are expected to remain manageable in the quarters ahead as business restructuring initiatives continue to offer support.
The company intends to undertake cost-saving actions to improve efficiency. Driven by the structural cost actions taken in 2023 and ongoing efficiency investments, savings of £1 billion are expected in 2024, with a payback of less than two years. By 2026, management expects total gross efficiency savings of £2 billion and cost-to-income ratio in the high 50s.
Moreover, Barclays has been striving to simplify operations and focus on core businesses. In July 2024, the company announced the divestiture of its German consumer finance business, while in April, BCS announced the disposal of its Italian mortgage portfolio.
In February 2024, the company announced the sale of $1.1 billion in credit card receivables to Blackstone’s Credit & Insurance segment to bolster lending capacity for Barclays Bank Delaware in the United States. In the same month, the company announced a deal to acquire Tesco’s retail banking business, which is expected to complement its existing business and strengthen BCS’s position in the market. Driven by these initiatives, Barclays’ profitability is expected to improve over time.
BCS has been paying dividends on a regular basis. It plans to return at least £10 billion of capital to its shareholders between 2024 and 2026 through dividends and share buybacks, with a continued preference for buybacks. The company’s board of directors initiated a share buyback of up to £1 billion starting first-quarter 2024. Management looks to reward its shareholders through capital distribution of roughly £3 billion in 2024 under the plan. Thus, driven by a solid balance sheet position, the company’s capital distributions will help enhance shareholder value.
However, the company’s net interest income (NII) and net fee, commission and other income have been witnessing a volatile trend in the past several quarters, owing to a challenging operating backdrop. While NII witnessed a marginal increase in the first quarter of 2024, net fee, commission and other income declined. Though structural hedges are anticipated to offer some support to NII, the uncertainty about the performance of the capital markets might weigh on the company’s top line.
BCS witnessed a significant rise in credit impairment charges in 2020. While there was a credit impairment release of £653 million in 2021, the metric increased again in 2022. Credit impairment charges are expected to be elevated in the near term because of the expected economic slowdown.
Stocks Worth Considering
A couple of better-ranked stocks from the finance space are Home Bancshares, Inc. (HOMB - Free Report) and United Bankshares, Inc. (UBSI - Free Report) . HOMB and UBSI currently carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for HOMB’s current-year earnings has been unchanged in the past 60 days. HOMB shares have gained 1.7% in the past year.
Earnings estimates for UBSI have also been unchanged for the current year in the past 60 days. In the past year, the UBSI stock has risen 11.6%.