First half results from banking group Barclays (BARC) are marred by a little over £2bn in litigation costs and fines which are drawing investors’ attention away from a solid underlying performance.
After trading higher early on, the shares are now firmly lower, down 1.6% to 188.7p as another round of PPI costs and £1.4bn settlement with the US Justice Department sees statutory pre-tax profit fall 41% to £922m.
UNDERLYING PERFORMANCE IS STRONG
Once the impact from these costs is stripped out pre-tax profit was actually up 20% to £3.7bn and chief executive Jes Staley noted that all these charges came in the first quarter with the second quarter proving the first three-month period with ‘no significant litigation or conduct charges, restructuring costs, or other exceptional expenses which hit our profitability’.
Assuming no further nasty shocks are in store, the market may therefore get a more unobscured view of the company’s performance in the remainder of 2018.
US-based activist investor Edward Bramson is calling on Barclays management to scale back its exposure to investment banking having taken a 5% stake in the bank in February and Staley has acknowledged management are in conversation with him.
ANALYST COMMENT
Shore Capital analyst Gary Greenwood reiterates his ‘buy’ rating and comments: ‘Barclays' shares continue to trade on a depressed rating, reflecting market concerns around the ability of the group to generate a return above its cost of equity.
‘However, we believe management is already making good progress towards addressing this issue and improving performance by focusing its efforts on operational and capital efficiency.
‘However, the market continues to price in no credit for successful deliver, in our view, despite the presence of a high-profile activist investor on the register keeping management on its toes. We continue to view the risk versus reward profile as being very much skewed to the upside.’
