When, not what
James reveals that the OM UK Alpha team added Barclays – which is the fund’s fourth-largest stock at 4.1% of the holdings – in anticipation of the change – and are therefore optimistic on the direction the business is taking.
“We are very positive about the restructuring,” he said. “Barclays is one of very few banks that trade at a discount to book value because it has this big slug of assets that are in low-return investment banking, and the changes will allow the value of the core businesses to shine through.
“Barclays is looking at re-launching their stockbroking business, which has slipped under the radar, and will most likely be looking at pushing back into wealth management in a much bigger way.
“On the investment banking side, from a shareholder perspective growing that part of the business does not actually help the share price, which HSBC has discovered. Barclays will not be growing the investment banking business any faster than the overall balance sheet – it will be kept in check with growth in the retail business.”
Barclays climbing 3.27% in the hours following the announcement, although likely got a little help from the Summer Budget announcement, though they eventually closed 3.21% up at 260.01p.
While Box says that these fluctuations are par for the course, he is mildly positive on the long-term outlook.
“People tend to jump the gun on these restructuring stories,” he explained. “There will be a bit of relief; sentiment-wise this is positive and should translate to a good share price in the long term, depending on what the new CEO tells the market they are going to do. Barclays is not cheap at the moment, but there could be a bit of upside.”
James, however, is more enthusiastic, and believes – given the magnitude of the restructuring process – owning Barclays could prove very beneficial for investors.
“I see the share price heading up in the long term,” he said. “The book value of Barclays is above where we are today. It should be about 290p per share, and the core business is already making a return on equity that warrants a higher share price than that.
“The only issue is how much of the capital that is tied up in the non-core bank – the best part of £10bn – can be taken out. The more that they can get out, the more value will be added to the shares.”
So it seems that rather than importance being placed on what the future holds, the key for Barclays is when they can get there.
