The long-awaited strategic review at UK banking group Barclays was welcomed by Investec (and the market) on Tuesday, with the broker maintaining its ‘buy’ rating for the stock.
The stock was up 4.46% at 314.95p by 09:24 in morning trade.
However, while adjusted profit before tax rose 26% year-on-year to £7,048m in 2012, this was 2.0% below Investec’s (and consensus) forecasts.
Nevertheless, the broker hailed the company’s cost performance during the year, specifically the improvement in costs at Barclays Capital (BarCap). Investec analyst Ian Gordon highlights that former Chief Executive Officer (CEO) Bob Diamond cut costs from £8.3bn to £7.3bn in this division in 2011.
He said that the new CEO Antony Jenkins ‘has achieved a reduction to £7.2bn in 2012 (including £0.2bn of the LIBOR settlement), and we expect further significant progress.’
In response to recent comments made by Jenkins – who told the parliamentary committee on banking standards last week that he was ‘shredding’ former Diamond’s legacy – Gordon said he was ‘reaping, not shredding, Bob’s rich legacy!’
He said: ‘Looking through management jargon, it is surely little wonder that Bob’s successor, Antony Jenkins, rightly plans to secure, and build upon the improving shareholder economics of Barcap. Shredding? Don’t make me laugh!’
Investec said Barclays is trading on 0.8 times tangible net asset value – broadly in line with RBS and at a discount to Lloyds (both rated ‘sell’) – which ‘appears to be a relative price anomaly give that we expect Barclays’ state return on equity to recover to c10% by 2014e’.
The broker’s 320p target price has been put under review, along with its forecasts.