Barclays’ (LSE: BARC) share price dropped nearly 8% on the day it released its fourth quarter 2022 results, showing a 14% drop in pre-tax profits for the full year. However, much of the bad news was already known in the markets. This makes the share price drop look overdone to me.
Given the otherwise solid performance in key areas over the year, and the positive outlook for each of its core business lines, I believe there may be value in Barclays’ shares on any future price dips.
Key drag factors on Barclays’ share price
One element that pulled Barclays share down was the over-issuance of US securities for which it was fined $361m by the US Securities and Exchange Commission. The bank recognised an overall net attributable loss for this breach of £600m in 2022, including current and potential private civil claims relating to it.
Another major drag factor on the share price was the poor performance of its investment banking business, which saw a 12% fall in equities trading and a 50% drop in advisory and capital markets fees.
The first of these factors, though, was already known to the markets in September 2022, and was reflected in Barclays’ share price back then. The second factor was in line with trends elsewhere in investment banking in London and New York as deal-making dwindled on rising geopolitical concerns after Russia invaded Ukraine.
Barclays’ core businesses look solid
Despite these factors, Barclays paid an annual dividend of 7.25 pence per share – in line with forecasts. On the day of its 2022 results announcement, Barclays shares were trading at a price-to-earnings ratio of just over 5.0. This compares to just over 7.5 for Lloyds and just over 10.0 for HSBC, suggesting value at current levels.
Barclays’ core business lines also look solid. Its Global Markets (GM) business continues to gain market share, while its Consumer, Cards and Payments business income increased across each its components. Barclays UK, in the meantime, increased its return on tangible equity back to pre-Covid levels of 10%+ and its income grew by 11%, largely because of higher net interest margin.
Positive drivers for Barclays ahead
Barclays has three key strategic priorities in its core UK and US businesses, and each appears to be progressing well.
The first is to deliver next-generation digital financial services, with 2022 having seen the Barclays banking app hitting the 10.5 million user mark. Nearly half a million clients are also now using its app to manage their mortgages. Barclays expects further growth with its anticipated acquisition of Kensington Mortgage Company in the first half of this year.
The second is to continue to deliver sustainable growth for its GM business, and Barclays has long been top ranked in Fixed Income Financing in this field. It is also now ranked in the top five in Prime Services. Overall, Barclays’ top 100 GM clients represent around 40% of the total market wallet.
The third priority is to capture low-carbon economy transition opportunities. A notable recent success here came as Barclays acted as the sole mergers and acquisitions adviser to Con Edison on the $6.8bn sale of its clean energy business. More recently, the bank was a lead bookrunner on Portland General Electric’s $500m green financing equity offering.
Given the likelihood of continued good dividend income and solid fundamentals, I am looking to buy the stock in the very near term. However, I will wait for a clearer picture of comparable stocks to emerge in the next few days with the release of results from NatWest and Lloyds in particular.
