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Barclays’ cash return plans underwhelm with buyback plan in focus

by LLB Editor
18th Feb 21 12:13 pm

Barclays is resuming dividend payments and adding to the 1p-a-share payment with a £700 million share buyback, the equivalent of a further 4p a share in cash, but the shareholders seem a little underwhelmed, says Russ Mould, AJ Bell Investment Director.

“The headline profit figures were better than expected and the balance sheet looks robust, according to key regulatory ratios, but the outlook statement is cautious and understandably packed with caveats. This may be why Barclays is taking baby steps when it comes to dividends and leaning towards a buyback, as the latter mechanism is more easily switched on and off. Starting or reining in a buyback programme is a much less dramatic statement of intent that increasing or cutting a dividend.

“A buyback does make sense when the shares are trading well below their tangible book – or net asset value (NAV) figure of 269p.

“However, investors could be forgiven for asking why a buyback will do the share price much lasting good this time around, when £18.3 billion of share repurchases (including those for Treasury share transactions) since January 2010 have offered no long-term support to the share price at all – Barclays’ market cap is now just £26 billion.

“This suggests that buybacks are not necessarily going to be seen as the show of confidence that management is hoping to offer. In the end, Barclays will still face several major challenges, as and when the pandemic is beaten off and the economy starts to show some momentum.

“Global indebtedness has gone up over the past year, from already uncomfortable levels, to suggest that growing loan books may not be easy. Those firms or individuals who are not already up to the gills in debt may have no need or desire to start borrowing, while those who are in trouble and may need to keep borrowing represent potentially high-risk propositions.

“Net interest margins remain under pressure, from record-low interest rates and Quantitative Easing, as central banks manipulate yield curves and try to keep them as flat as they can. That may help borrowers manage their interest costs, but it squashes the margin on banks’ loan books.

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