More on Barclays
Barclays: H1 results
Led by investment banking, asset management and UK banking, Barclays reported a 9% increase in pre-tax profits for the six months to June 2005. The bank reported pre-tax profits of £2,690m, compared to £2,463m last year.
The growth was led by the investment bank, Barclays Capital, which reported a 20% increase in pre-tax profits to £703m. Pre-tax profits in UK banking rose 10% to £1,275m while in asset management, run as Barclays Global Investors, pre-tax earnings rose 60% to £242m. Profits in international banking rose 30% to £188m. The only poor performer was credit cards where profits declined by 17% to £379m due a higher level of bad debts and operating expenses.
The higher level of bad debts was due to the weaker consumer environment, as well as the increase in size of the loan book. There was a deterioration in quality of the credit card loan book but impairment levels were stable in UK mortgages and fell in corporate banking.
Overall interest margins are under pressure (interest margins have shrunk to 48.3% from 50.7% a year ago), particularly in retail banking. The overall cost:income ratio has remained stable (at 57%) compared to last year.
In UK banking (comprising retail and business banking) growth was driven by asset growth (+10%) as well as an improved cost:income ratio which dropped to 51% from 54% last year. A strong performance in business banking (where profits rose 20%) offset a weak performance in retail banking (where profits declined by 2%).
A 10% increase in assets under management and an increase in fees were mainly responsible for the increase in profits in asset management.
The acquisition of Banco Zaragozano in Spain helped boost asset growth and earnings in international banking. Growth was also strong in Italy, Africa and the Middle East with total average customer loans increasing by 28% due to an aggressive selling campaign.
The results for the half year are respectable but not particularly exciting. The most interesting aspect to this stock is the acquisition of Absa, a South African bank, that was completed in July 2005. The acquisition will be immediately earnings accretive and should add at around 5% to Barclay’s earnings in the second half of the year and may prove to be good driver of earnings in the medium term.
The share trades at 530.3p, on a prospective PE (2005 earnings) of 10.2x within the sector range. The yield is 4.6%.
Random picks: BOC | De La Rue | Euromoney | HMV | Land Securities | Michael Page | Paragon | Spectris | Stagecoach | Whitbread