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Shares in Barclays (BARC) are contributing most to the UK Index this morning (+5pts), helping keep the index above water on well received FY 2016 results. The bank confirms it was back in the black for 2016, helped by a welcome 69% drop in legal charges, a surge in investment banking revenues and profits, and the fruits of almost complete group-wide restructuring (less Africa and Asia, more UK and US). This harks back to better years when investment banking accounted for the lion’s share of the group’s profits and bodes well for Jeff Staley’s gamble in pivoting focus back towards a struggling unit in which he saw superior growth potential.
Today’s update means the board is “more optimistic than ever about 2017, and beyond”, something which chimes well with bulls who are equally optimistic about the group’s new focus in the context of economic recovery, gradual tightening of monetary policy and a potential boost from Trump-inspired sector de-regulation. Yes the dividend has been cut, reducing the yield to just 1.3%, but this is no surprise, having been announced last March (2017 + 2018 dividends cut to bolster balance sheet).
If bottom line growth maintains momentum, there could even be potential for this period of lower pay-outs to be cut short, attracting fresh interest that propels the shares back towards 2013 highs of 300p. Today’s reaction adds to a strong set of results from Lloyds yesterday and offsets Tuesday’s poor start to reporting season from HSBC. Let’s see whether RBS and STAN can make it 4-1 for turnaround stories tomorrow and help BARC with and hitherto elusive breakout to 250p 16-month highs that extends recovery from 120p post referendum lows.
Mike van Dulken, Head of Research, 23 Feb
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