LONDON -- New management at Barclays (BARC +1.74%) (BCS +1.41%) is determined to transform the culture and practices at the bank. Unfortunately for shareholders, this posturing seems to be deflecting the market's attention from just how successful the underlying business is. This is good for contrarian investors like me. The negative sentiment has depressed Barclays' share price, presenting the opportunity to continue increasing my stake.
Valuation
Barclays shares today trade on just 7.9 times forecast earnings per share for 2013. Growth of almost 20% is forecast for 2014, bringing the P/E down to 6.6 times expected earnings. For comparison, HSBC currently trades on a 2014 P/E of 10.1 times forecasts. Lloyds is priced at 9.4 times.
It has been eight years since I first bought shares in Barclays (selling within a year for a large profit). I cannot recall a point where the shares offered better value than they do today. Either the forecasts are wrong or Barclays shares should be at least 50% higher. If sentiment improves, Barclays shares could rise significantly.
Income
Unlike crisis cases Lloyds Banking and Royal Bank of Scotland, Barclays paid a dividend throughout the financial crisis. Since 2009, that payout has been increasing and is forecast to hit 7.2 pence per share for 2013. Another double-digit rise is then forecast for 2014. At today's price, this suggests that Barclays shares will be yielding 3.2% next year. Forecast earnings mean that the expected dividend would be nearly five times covered -- leaving plenty of room for further increases.
Why now?
Barclays reported first-quarter results last week. This revealed that one-off costs prevented the company from reporting a 6% profit increase. Impairments (cost of bad loans and/or assets) were down 10%. The bank reported a net tangible asset value of 344 pence per share -- more than 10% ahead of today's share price.
The next week will see RBS, HSBC, and Standard Chartered all announce their Q1 results. I am expecting all three to release news that will inspire confidence across the sector. With Barclays currently trading on such a low rating, any improvement in sentiment could lead to a considerable share-price rise.
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