Following Barclays’ move to raise more capital and a decline in its share price, the bank is being viewed as attractive by stock pickers who feel its finances are in a healthier state.
After announcing it was planning to raise £5.8bn through a rights issue and £2bn through bonds being converted into shares, Barclays’ stock price fell by 5.7 per cent on 30 July.
With cheaper stocks and the further news the bank will be shrinking its balance sheet by up to £80bn over the next 12 months, stock pickers are finding Barclays attractive again.
Fidelity manager Alex Wright, who manages the £481m Fidelity Special Values fund, admits uncertainty has dogged the bank but is taking confidence from Barclay’s efforts to strengthen its balance sheet.
Wright says: “A capital raising was expected, and discounted in the share price. At this point, it is appropriate for Barclays to err on the side of caution and ensure their balance sheet comfortably meets the regulator’s expectations.”
Wright, who already has some exposure to Barclays, is comfortable adding to this holding as a result.
“The upside for Barclays is still significant, with strong franchises in investment banking, UK retail and a leading African banking business, and with the downside now more quantifiable as a result of this rights issue, I am comfortable holding more of the company’s shares,” he says.
However, the Share Centre has placed its investment reccomendation of Barclays to ‘under review’ as a result of the news.
Despite Barclays previously being a sector favourite for the firm, investment adviser Graham Hooper says: ”Barclays has for a long time been our preferred high street bank however, we are putting our recommendation for investors under review. [Tuesday] morning’s update has once again raised doubt over the sector and it appears not to be out of the woods just yet.”
Rathbone Unit Trust Management chief investment officer Julian Chillingworth was not surprised by Barclay’s call for capital but was surprised by the numbers involved. However, he takes confidence from the bank’s recapitalisation.
With some of the Rathbones portfolios containing Barclays stocks, Chillingworth says: “Hopefully that will be sufficient for them run the business and placate the regulator. That should make them more attractive. People looking at the sector will revisit Barclays and it is not just because of the price – it is because the management is trying to recapitalise the business. The money they are raising will put them on a better footing.
“We own some [Barclays shares] and I think it is highly likely we will be taking up the rights on the stock we own.”
Brewin Dolphin deputy head of research Ed Salvesen admits there are concerns that Barclays may not have done enough but feels it is now on a par with some global peers.
Salvesen says: “We do not expect the regulatory environment in the UK to worsen significantly in the short term and think that the sound capital footing Barclays is on post the rights issue is enough.
“Therefore, we see the investment case of Barclays, once the rights issue has subsided, as attractive. It has a market leading position with good global end-markets, with a strong investment bank and an attractive retail offering. Add to this the fact that the dividend should be growing with the increased payout ratio and we expect it to be a long-term growth story.”