It’s easy to imagine what keeps U.K. banking regulators awake at night. They need only look toward Ireland to see what happens when the sovereign has to back the assets of a bloated banking sector. Looking towards Iceland, where all three private banks went bankrupt, must be almost beyond contemplation. With such examples, it’s easy to understand why U.K. and EU regulators continue to focus on the size and complexity of the sector’s balance sheets.
This week, Barclays succumbed to the pressure (article here) and announced plans to raise capital and reduce its balance sheet, though as Robert Jenkins noted in the Financial Times, its assets remain comparable in size to the entire annual economic output of the U.K.
On the heels of the Barclays announcement, analysts promptly downgraded their EPS forecasts (30 day change in EPS is -9.8%); but, one sweetener that CEO Antony Jenkins did offer was an increase in the payout ratio, meaning shareholders will be able to tuck a larger dividend check into their back pockets. Are the downgrades finished? Not according to the StarMine Predicted Surprise, which forecasts revisions over the next 30 days.
BARC LN FY1 EPS predicted surprise
There is a large difference between the I/B/E/S mean estimate of GBp 32.87 (in blue) and the StarMine SmartEstimate of GBp 31.55 (in gold), indicating likely EPS reductions over the short term.
However, with the share price having fallen approximately 12% since July 23, it’s worth considering whether the unexpected bad news is now priced into the stock. The StarMine forward 10 year Market Implied Growth rate for the stock is negative (-0.6%) and the question investors are no doubt considering is whether the greater dividends in 2014 and the modest reduction in leverage are enough to justify some exposure. With the stock trading at a forward PE of 8.2, yield of 3.6% and at only 0.7 times book value, there’s certainly a large margin of safety for the intrepid or contrarian.
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