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Barclays (LSE: BARC) shares have dipped slightly this morning even though the FTSE 100 bank beat expectations with a £1bn jump in first-half profits and cheered shareholders with another bumper round of capital returns.
I expected better as today’s (29 July) numbers look strong across the board. So did investors expect even more after its recent stellar run? Looks like it.
The group’s profit before tax rose 28% to £5.2bn, with earnings per share up 41%, reflecting profit growth and the impact of share buybacks.
Return on tangible equity hit 13.2%, beating the board’s 2026 target of 12%, while its net interest margin jumped from 3.15% to 3.55%. These are solid indicators that the business is doing what it set out to do, improve performance, boost returns and run a tighter ship.
Its investment banking division delivered a 13% rise in first-half income to £7.1bn, thanks to a revival in global market trading. However, dealmaking fees fell 16% to £568m in Q2, as major business lines posted a decline. This cast a shadow on the results
FTSE 100 rocket
The bank also announced another £1bn share buyback and lifted its dividend payout, pushing total capital distributions for the half to £1.4bn, up 21% year on year.
Barclays shares have climbed 56% over the past 12 months but trade on a price-to-earnings ratio of just over 10. That looks cheap, considering the quality of these results. The price-to-book ratio of just 0.71 also suggests value. To my mind, that creates a possible opportunity for long-term investors.
The low dividend yield may put some off. On a trailing basis, it’s 2.33%, below Lloyds or NatWest. That’s partly due to the rocketing shares. And the board prefers to reward investors through share buybacks, which boosts dividend per share growth through share count reduction.
So the H1 dividend crept up just a 10th of a penny (from 2.9p to 3p). That’s still a rise of 3.45%, so not too shabby. Personally, I’d rather receive a higher dividend, but investors will have to decide for themselves what they value more.
Growth, income and buybacks
Investment banking can be unpredictable, especially during periods of global instability. It’s been a blessing this time, but could be a drag if markets turn. There’s also political risk at home. Chancellor Rachel Reeves is under pressure to slap new taxes on the banks. Today’s bumper results will increase that.
Another concern is that the bank’s cost base is rising, up 5% year on year. Some of this is down to the Tesco Bank acquisition, but inflation and investment costs also played a part. The cost-to-income ratio’s heading in the right direction, improving from 63% to 59%, so management does appear to have this under control.
I don’t think the window of opportunity has completely closed just yet. Yes, shares have ralllied hard, but the valuation still looks appealing and the bank is executing well on its strategy. Market sentiment towards the banking sector has shifted over the past year and Barclays stands to benefit further if this continues. The biggest challenge appears to be high investor expectations.
I still thinks Barclays is one to consider buying for those willing to accept a bit more risk in pursuit of greater long-term rewards. It’s not quite a no-brainer, but what stock is?
