Is Now The Time To Buy Barclays PLC?
I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today I am looking at Barclays (LSE: BARC) (NYSE: BCS.US) to determine whether you should consider buying the shares at 290p.
I am assessing each company on several ratios:
Price/Earnings (P/E): Does the share look good value when compared against its competitors?
Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
Yield: Does the share provide a solid income for investors?
Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
|Stock||Price||3-yr EPS growth||Projected P/E||PEG||Yield||3-yr dividend growth||Dividend cover|
The consensus analyst estimate for this year's earnings per share is 37p (11% growth) and dividend per share is 7.2p (11% growth).
Trading on a projected P/E of 7.8, Barclays appears cheaper than its peers in the bank sector, which are currently trading on an average P/E of around 18.4.
Barclays' P/E and double digit growth rate give a PEG ratio of around 0.7, which implies the share is under-priced for the near-term earnings growth the firm is expected to produce.
At 3.3%, Barclays' dividend income is about the same as the bank sector average. Additionally, Barclays has a three-year compounded dividend growth rate of 18%, implying the yield will grow in line with that of the company's peers.
Indeed, the dividend is slightly more than five times covered by earnings, giving Barclays plenty room for further payout growth.
Finally, Barclays' share price is currently 34% below the bank's net asset value of 438p per share at the end of 2012.
Barclays appears cheaper than its peers in the bank sector, so is now the time to buy?
I believe Barclays is one of the most financially stable and profitable banks in the FTSE 100. During 2012, Barclays' underlying profit before tax jumped 26% from the previous year to just over £7 billion.
Having said that, like the majority of its peers in the banking sector, Barclays was forced to take an accounting charge relating to the value of its own debt, as well as increase its provision for Payment Protection Insurance claims. As a result, the company's overall 2012 profit before tax was reduced to only £250 million.
Nonetheless, Barclays appears to have a solid capital base. For example, at the end of 2012, the bank had a Tier 1 capital ratio of just under 11% and a loan-to-deposit ratio of 110%, which indicates that almost all of the bank's loans are covered by customer deposits.
However, Barclays has something that the majority of its UK peers do not and that is a large presence in Africa. In particular, Barclays is focused on becoming the leading bank on the African continent with its 'One Bank in Africa' strategy.
Indeed, Barclays currently has more than 14 million African customers across ten countries and Barclays' African division accounted for 10% of the whole group's net operating income during 2012.
So overall, based on Barclays' current discount to peers and the group's African exposure, I believe now looks to be a good time to buy Barclays at 290p.
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.