Brokers overwhelmingly bullish on Barclays post earnings

A handful of brokerages continue to rate Barclays stock as ‘buy’ despite Tuesday’s results from the bank that contain a huge increase in provisions to cover the costs of legal fees relating to scandals.

The British bank this Tuesday announced a fresh £750m provision to cover any costs in settling with regulators following a probe into foreign exchange rate rigging, which is an addition to the £500m it has already set aside for other litigation, competition and regulatory matters.

Barclays was recently named as one of the 10 banks involved in price-fixing precious metals trading by US and UK regulators who are reportedly launching investigations. Barclays also made a fresh £200m provision to cover pay-outs for mis-sold payment protection insurance (PPI) in the last quarter of 2014.

Despite concerns in the market that rising litigation costs could dent the group’s profitability further, brokerages covering the bank were overwhelmingly positive with Jefferies, Numis Securities, Investec Securities and Shore Capital all maintaining a buy rating on Barclays stock.

“We believe that the company is making good progress towards reshaping the business and improving balance sheet strength,” said Shore Capital’s analyst Gary Greenwood.

“From a divisional perspective, performance was better than we expected in Personal and Corporate Banking and Africa Banking but was worse than we expected in the Investment Bank and Non-core,” he added.

By contrast, Numis analyst Mike Trippitt, however, was pleased with the performance of the investment banking division in the fourth quarter, citing a stable income and notable pick-up in M&A and advisory fees while performance of equities trading offset quarter on quarter declines in credit trading.

“2014 Investment Bank revenues were £7,588mn, better than our £7,370mn forecast,” added Trippitt who kept a 315p target price on the stock.

Meanwhile Jefferies analyst Joseph Dickerson said Barclays is a name that continues to offer positive momentum and achieved in-line results for the fourth quarter of 2014.

He noted that Barclays achieved good divisional performance and raised its capital ratio buffers despite taking the hefty provisions, “illustrating the company is able to manage capital build against taking material charges.” Dickerson retained a target price of 340p on the stock.

Investec Securities analyst Ian Gordon also noted of the bank’s ability to control its capital in the face of potential losses, saying the group’s capital ratio will benefit by 0.2% from completion of the Spain disposal in the first quarter of 2015.

“The dividend is maintained at 6.5p, giving a yield of 2.7%. We expect the dividend to increase to 15.0p by 2017, suggesting a prospective dividend yield of 5.7%,” said Gordon while maintaining a target price of 295p.