Can earnings help Barclays’ share price?

Barclays’ [BARC.L] share price has been through the mill this year, plunging more than 40% from the beginning of 2020 to 102.72p on 21 October. Over the last few weeks, Barclays’ share price has risen from 92.16p on 21 September to 107.28p on 9 October. However, the recovery has stalled over fears of negative interest rates potentially being introduced by the Bank of England to stimulate the economy. Will Barclays’ share price benefit from hopeful earnings, or does it have further to fall?

Barclays’ share price slid to 83.20p in mid-March as markets dropped amidst coronavirus pandemic fears and continued to fall as low as 80.24p on 3 April.

This dip in Barclays’ share price was due to concerns that consumers and businesses would struggle to repay loans during the pandemic, as well as continuing worries such as low interest rates battering incomes. 

Barclays’ share price recovered to 131.80p on 8 June as lockdown measures began to ease, and first quarter results showed its investment bank performing well.

However, Barclays’ share price fell away again to 100.56p on 31 July after first-half profits dived 66%, and the bank set aside £3.7bn to cover anticipated bad loans from the pandemic.

Investment bank positivity

When Barclays releases its third quarter earnings, analysts expect pre-tax profit to climb to £507m compared with £246m a year ago, according to AJ Bell.

However, last year’s profits were impacted by the last tranche of payment protection insurance (PPI) claims being processed at a cost of £1.4bn.

For the first nine months of the year, says AJ Bell, Barclays is expected to record a pre-tax income of £1.8bn, down from £3.3bn at the same point in 2019.

“Just as in America with its banks, two factors may be working against Barclays’ profits,” says Russ Mould, investment director at AJ Bell. “The first is provisions against loans which have gone sour or may be about to do so. They are expected to reach about £1bn in the third quarter, up from £461m a year ago. The second is the net interest margin. This is being hobbled by central banks slashing interest rates to nearly zero.”

However, positive news is set to come from Barclays International, the home of its investment bank. Merger and acquisition activity has picked up and there is plenty of new issuance in the stock and bond markets. International is tipped to make a pre-tax profit of £634m.

The road ahead for Barclays’ share price

Rupert Hargreaves, writing in The Motley Fool, believes Barclays financial position is robust and should take any loan losses in its stride.

However, those losses and negative rates could continue to weigh on profits.

“The outlook for Barclays’ share price remains uncertain but much of this is already reflected in the stock. It looks very cheap at current levels and as such risk-tolerant, long-term investors who can look past the bank’s current problems might be able to profit,” Hargreaves wrote.

“The outlook for Barclays’ share price remains uncertain but much of this is already reflected in the stock. It looks very cheap at current levels and as such risk-tolerant, long-term investors who can look past the bank’s current problems might be able to profit” - Rupert Hargreaves, The Motley Fool

However, there will be continued uncertainty around customers’ ability to pay loans and potential negative interest rates.

There is also ongoing pressure from activist shareholder Edward Bramson, of Sherborne Investors, who wants to slash Barclays’ investment bank trading and focus on retail banking, and who has called for Jes Staley, CEO of Barclays, to step down. Recent reports indicate, however, that Staley will stay on for another two years 

According to Market Screener the outlook is positive. The consensus rating of analysts on the stock is Outperform, with an average target of 142.46p on Barclays’ share price.

RBC Capital Markets sees the price climbing to 111p, with Jefferies going even bolder, forecasting a surge to 233p. 
Citigroup believes UK banks are in a positive position helped by the likely resumption of dividend payments from February 2021. 

It said there was also “limited increment downside risk from a no-deal Brexit versus a planned rudimentary [free trade area]”. However, despite giving a Buy rating to Lloyds [LLOY] and NatWest [NWG], it was Neutral on Barclays. 

Barclays share price vitals, Yahoo Finance, 22 October 2020