Does Barclays profit hike signal change of fortune?

Quarterly profits are up sharply and the shares are higher, but there is still much to do. Richard Hunter, head of markets at interactive investor, talks us through the numbers. 

Barclays' fortunes are improving and this latest update is, on the whole, one of promise.

Third-quarter underlying pre-tax profit is over 30% higher year-on-year, the Return on Equity figure is an impressive 11.1% (and 18.9% for Barclays UK), operating expenses are marginally down and credit impairment charges have fallen sharply. 

Meanwhile, investment in the business continues, especially in the digital space, the earnings per share metric remains in positive territory and the projected dividend yield of 3.9% is edging towards an acceptable level, all of which is underpinned by a robust capital cushion. 

Notwithstanding the caveats of Brexit and macroeconomic uncertainty, the outlook given by the bank is relatively upbeat.

Source: TradingView (*)   Past performance is not a guide to future performance.

There is, however, still much to do. The Investment Bank saw a dip in revenues on the previous quarter, possibly due to the traditionally quiet trading volumes experienced over the summer. The cost/income ratio is still high, particularly in comparison to some of its peers, whilst currency headwinds have generally hampered performance. 

In addition, the phrase "excluding litigation and conduct" is peppered throughout the statement. Unfortunately, these charges affect the business and cannot be taken in isolation, given that they appear to be a regular feature. 

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For this particular quarter, the chief culprits are a £1.4 billion settlement over residential mortgage backed securities and another PPI charge of £400 million. Although the bank is striving to consign these charges to history, investors will be relieved when they cease to become an important part of the narrative.

UK banks in general have had something of a torrid time lately, with Barclays' share price having fallen 15% over the last year, as compared to a 7.6% dip for the wider FTSE 100, and have suffered a decline of 12% in the last three months alone. 

Even so, market consensus of the shares as a 'buy' remains intact, given that the generally positive direction of travel for Barclays is slowly but surely becoming entrenched.

Source: TradingView (*)  Past performance is not a guide to future performance.

*Horizontal lines on charts represent previous technical support and resistance.  Red lines represent uptrends and downtrends.