Barclays due diligence report.

Hatchworks has conducted due diligence on Barclays, a major British bank providing a variety of financial products and services throughout the world. Barclays is organized into four core businesses: personal banking, corporate banking, wealth management, and investment management. Barclays is headquartered in London and listed on the London Stock Exchange, under symbol ‘’BARC’’.

Financials — Barclays
(source: Marketscreener.com)

Barclays current market cap is £15B.

With a predicted net-income growth of 9.8% for 2020E and 2021E, and a net income estimate for 2021E in excess of £3.9B, this points to a P/E ratio of 3.54x.

The revenue/sales forecast is £21.3B for 2020E, indicating a P/S ratio of 0.68x.

In terms of profitability, an operating margin of 37.2% is predicted for 2020E. This compares to a 48% operating margin for competitor LLoyds (LLOY).

Barclays has a relatively high expected yield of 11.4% for 2020E. Some competitors, have a higher expected yield; for example, Royal Bank of Scotland (RBS) at 11.4%.

Looking at Barclays annual 2019 results we can see that:

• Net profits were up 39.4% compared with 2018.
• Furthermore, Barclays cost/income ratio (C/I) decreased from 66% in 2018 to 63% in 2019, compared to an average of 60.1% with most other British banks. The C/I ratio is a key financial measure, particularly important in valuing banks. Lower ratios mean that a bank is running more profitably whereas a higher C/I ratio indicate the bank’s operating expenses are too high.
• Net Interest Margin (NIM) in 2019 was 3.09%. This means Barclays is doing relatively well earning interest on loans compared to the amount of interest it is having to pay on deposits.
• Common Equity Tier 1 (CET1) is a component of Tier 1 capital that consists mostly of common stock held by a bank or other financial institution. It is a capital measure that acts as a precautionary means to protect the economy from a financial crisis. It is expected that all banks should meet the minimum required CET1 ratio of 4.5%; Barclays has a strong 13.8%.
• The liquidity coverage ratio (LCR) remained well above the 100% regulatory requirement at 160%.
• The leverage ratio is solid and stable at 5.1%, a little under the 5.6% average.

To date, bank interest-margins are coming under pressure owing to an ongoing interest rate downward spiral. Also, big banks have given loans to certain oil and gas companies. Due to the oil price war between Saudi Arabia and Russia, oil prices plunged significantly and, as a result, certain oil and gas companies could potentially experience problems repaying their debts on time. Another major concern is the Covid-19 (a.k.a. Coronavirus) pandemic; it is still very uncertain how this will play out, not least because it’s a global problem but because it hurts the ability of borrowers (either people or companies) to repay debt.

As a result of all this, Hatchworks will maintain its position in Barclays with a long term view but not allocate further until systemic risks have subsided.

The Hatchscore is 6.9 out of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies

What is Barclays?

A British multinational investment bank and financial services company, headquartered in London, organized into four core businesses: personal banking, corporate banking, wealth management, and investment management.

Big Investors:

• Qatar Holding LLC.
• Sherborne Investors Management LP.
• The Vanguard Group, Inc.
• Dodge & Cox.

What are the risks?

• If banks pass on negative interest rates to their regular retail clients, they could see significant withdrawals. As a result, market share could drop rapidly.
• Low interest rates and Britain’s Brexit-hit economy could make it tougher to meet the bank’s targets next year.
• Due to economic uncertainty, investors may be more interested in safe haven assets like gold. Therefore, regular shares become less attractive which could also cause a drop in market share.

Top competitors:

• Lloyds. (LLOY)
• HBSC. (HSBC)
• Royal Bank of Scotland. (RBS)

Management team:

• Sir Ian Cheshire: Chairman.
• Nigel Higgins: Group Chairman.
• Jes Staley: CEO.

The Hatchworks Team

The forecast figures are based on the data of MarketScreener and not from Hatchworks: https://www.marketscreener.com/BARCLAYS-PLC-9583556/financials/

Legal Disclaimer — This report summary has been generated as a result of Hatchworks’ proprietary company vetting and filtering system. The level of due diligence conducted on investible assets conducted ranges from mediocre to significant, the latter being the case where Hatchworks has explicitly taken strategic positions in. By no means is the information in this file to be relied on as investment advice; this includes Hatchworks’ algorithmic composite score known as ‘Hatchscore’. Hatchworks has not received any compensation for this research. For more information you can reach us at info@hatchworksvc.com. This report is not for distribution in the United States of America. It is closed to U.S citizens. If you are a U.S. citizen, you should delete this report or return to sender.