Key insights
- The author argues Barclays is undervalued due to Brexit fears and concerns about its investment banking arm. They believe increased market volatility benefits Barclays' trading division, making it a value opportunity. While primarily focused on UK markets, the performance of global investment banks, including Barclays, can have a slight positive influence on US equity sentiment, particularly for large financial institutions.
Barclays is a large UK bank. It has both retail and investment banks within its umbrella.
It is priced very cheaply indeed - current price to book is less than 0.7, and price to tangible book is less than 0.8, so in theory if you took it over and sold all it's assets you'd get 25% more than it's market cap back.
UK banks have been discounted since brexit, which was a good reason to discount them, along with the low interest rates at the time, but it went too far. Since then they've been on a run as interest rates got back to normal, and there's a question of whether there is much left to go. But in Barclays case the valuation is much lower than its UK peers. Since the Iran war they've gone down on UK economic fears and global recession fears, which I think are a little overblown as the upside for banks is that interest rates stay up they make more money from net interest margins. This war means interest rates are unlikely to be cut any time soon.
What is absolutely nuts though is that most of Barclays profits come from that investment banking division, and that in turn is driven mainly by trading. Traders make money when markets are volatile and there's a lot of trading to and fro. And recent markets are the epitome of what trading houses love. Ironically one of the reasons I've seen for Barclays low valuation is that investors are scared of the risks of the investment banking arm.
Compare Barclays p/e etc to that of other investment banks and it's insanely undervalued. I already hold quite a bit of Barclays - even with the recent drawdown I'm in the black by some way - and have just topped up even more. If you want legit value this is it.