Barclays’ [BARC] share price is on the up after the bank delivered record profits easily topping analyst expectations. And as the UK economy continues to reopen following the pandemic, the Barclays share price could continue to climb, especially if there’s a hike in interest rates.
In the third quarter, Barclays’ profits more than doubled compared to the same period last year. Helping the top and bottom line was another strong performance from its investment business and the dwindling impact of the coronavirus.
Net income came in at £1.45bn, a huge jump from the £611m seen in the same period last year. Group profit before tax was £6.9bn, the bank’s highest pre-tax Q3 result on record. Earnings per share came in at 30.8p, up from the 7.6p seen last year.
"A record profit for Barclays in the third quarter is illustrative of the turnaround in fortunes the UK's major banks have had compared to where they were this time last year," said Zoe Gillespie, investment manager at Brewin Dolphin.
“A record profit for Barclays in the third quarter is illustrative of the turnaround in fortunes the UK's major banks have had compared to where they were this time last year” - Brewin Dolphin Investment Manager Zoe Gillespie
What’s happening with Barclays’ share price?
Barclays’ share price has climbed over 20% in the last three months (through 28 October). Year to date the stock has delivered a 37% return and over 80% over the 12 month period. Obviously, UK banks were hit hard by the pandemic which forced them to earmark money for impairment charges and cut dividends. At one point on 27 March 2020, Barclays’ share price touched 80p a share.
Anyone who had bought at that point would be looking at a 103% return based on Tuesday’s closing price of 202.8p. Where the stock goes next could depend on the continued strength of its investment banking division.
Investment banking drives Barclays’ earnings
Much of Barclays’ resilience during the pandemic was due to its investment banking operations, which provided a counterbalance to the pressure facing its UK retail arm.
Investment banking once again made an outsized contribution to earnings. In the third quarter, this area brought in £3.1bn, up from £2.9bn in the same period last year. Pre-tax profit for the investment unit was £1.5bn - a 51% jump from the previous year’s £1bn.
Fees from investment banking increased 59% year-on-year thanks to a strong performance across the board, which Barclays said reflected an increase in overall market share. Revenue from equity capital markets increased 52% year-on-year and debt capital markets was up 34% year-on-year.
Revenue equity trading increased 10% year-on-year, although fixed-income revenue decreased 20% year on year following a drop off in activity.
The Barclays investment unit pre-tax profit, up 51% from the previous year
The performance vindicates chief executive Jes Staley’s support of the investment unit in the face of activist investor Edward Bramson’s attempts to force Barclays to shrink that side of the business. Bramson sold his entire stake in the bank, giving up a three year tussle with the bank.
“We now have a position as one of the top six global investment banks and we’re going to keep that,” said Staley.
Is Barclays share price worth investing in?
Of course, profits from its investment arm could be volatile. Yet, Barclays also delivered in its UK retail banking operations. Net profit in the business came in at £451m, up from £196m the year before. Total income in the area went from £1.5bn to £1.64bn. Also helping the numbers was a drop in credit impairment charges which fell to £120m.
Barclays’ gangbuster results mean they are well-positioned to grapple with the looming inflation spike facing investment banks. According to Reuters, Barclays CEO Jes Staley was in a relaxed mood with reporters when it came to inflationary pressures facing the UK, saying that an annual rise in prices of up to 4% could be good for the bank if it is supported by economic growth.
“We are also seeing evidence of a consumer recovery and the early signs of a more favourable rate environment," Staley said.
Another growth driver could be any rate hike in the base rate The Bank of England is expected to raise interest rates before Christmas, which would be beneficial for Barclays credit products.
“We are also seeing evidence of a consumer recovery and the early signs of a more favourable rate environment" - Barclay's CEO Jes Staley
Among the analysts tracking Barclays’ share price on Yahoo Finance, the stock has a 230.29p price target - hitting this would see a 13.6% upside on Tuesday’s close.