Barclays PLC (LON:BARC) has eased the blow of its full year loss with plans to raise the 2018 dividend and a positive outlook.
It has also made progress in putting the payments protection insurance (PPI) mis-selling scandal behind it with charges related to the issue falling by £300mln to £700mln in 2017.
READ: Barclays swings to 2017 loss but shares gain on plans to restore dividend
But it’s not over until the Financial Conduct Authority sings as the regulator has set a deadline of August 2019 for PPI claims.
“Claims activity may yet confound expectations, so we could get further incremental changes to the bank’s provisions in the next eighteen months,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.
PPI is not the only thorn in the lender’s side.
Legacy issues remain
Its chief executive Jes Staley is under investigation by UK and US regulators for attempting to unmask a whistleblower.
Barclays is also facing a large penalty from US authorities over the mis-selling of residential mortgage-backed securities.
On top of that, the UK’s Serious Fraud Office has charged the bank with unlawful financial assistance over a US$3bn loan provided to Qatari investors as part of an emergency fundraising at the height of the financial crisis in 2008.
READ: Barclays charged by SFO over loan to Qatari investors in 2008 fundraising
“Worst case scenario – Barclays is stripped of its banking licences,” said Neil Wilson, senior market analyst at ETX Capital.
“Clearly management and investors are pretty relaxed that it won’t go that far, but there is no room for complacency."
2018 dividend keeps investors happy
Indeed, investors seem pleased with the bank’s plans to restore dividends back to the level before it cut payouts two years ago when it needed to use the extra funds to support its restructuring.
Barclays said it would raise its dividend to 6.5p in 2018 after keeping the payout unchanged at 3p in 2017.
The announcement has boosted shares today, rising 3.6% to 209.5p in afternoon trade.
“A promise to double the dividend this year has naturally got the market very excited, but revenues at the UK bank have actually flatlined, while the international division is flagging,” said Khalaf.
“In particular the investment bank looks like a casino where the house isn’t winning.”
The corporate and investment bank (CIB) saw total income fall by 6% in 2017 with Barclays blaming weak market conditions.
Positive developments
However, Barclays said it has seen an improvement so far this year with CIB income in the first seven weeks tracking above the level reached in 2017.
In another positive development, it has lowered risk-weighted assets after cutting its stake in the Africa business to focus on core areas of the business.
Last year it a made a £2.5bn loss on winding down its holding in Barclays Africa, but this was a one-off charge.
“The good news is that the African hit will not recur,” said AJ Bell investment director, Russ Mould
“In addition, Barclays’ profits could shoot higher quickly if it can keep impairment and conduct costs down, but with the whistle-blowing case involving chief executive Jes Staley, the Serious Fraud Office investigation into 2008’s Qatar-backed fundraising and an ongoing fight with the US Department of Justice over allegations of mis-selling mortgage-backed securities there is no guarantee that this will be the case.
Shares look cheap, says analyst
On the upside, Mould thinks the shares look cheap in comparison to sector peers at less than one times tangible net asset value per share of 276p, or 263p adjusting for accounting changes that come into force in 2018.
“For Barclays to become less cheap, it therefore needs to reassure on the big three regulatory issues, cut down on the conduct and loan and asset impairment costs and get its investment bank to perform better,” he said.
ShoreCap maintains 'buy' rating
Shore Capital remains bullish on Barclays, reiterating a ‘buy’ rating after its annual results.
It expects the bank to report an adjusted pre-tax profit of £6.4mln in 2018, which is above consensus forecasts of £5.7n. Barclays reported an adjusted pre-tax profit of £4.5bn last year, a 23% increase on 2016.
ShoreCap predicts a dividend per share of 7p, slightly higher than the bank’s guidance.
The bank has strengthened its capital position and said it intends to improve shareholder returns going forward, ShoreCap noted.
“Our profit forecasts are perhaps a little toppy but consensus is too low on the dividend,” said ShoreCap’s Gary Greenwood.
“We believe that the current share price is giving management no credit for its ability to improve returns, with delivery providing scope for significant upside potential, in our view.”