Barclays still 'top pick' among FTSE 100 banks

Barclays has lost half its value in a little over six months and remains stuck firmly in a downtrend. Technical analyst Alistair Strang said last week that the shares could be heading for 125p, but could break out of the negative trend and signal a bottom if they rose above 164p. They haven't yet, and price action is unconvincing. One expert, however, believes it's only a matter of time.

Alistair's software suggested a next leg up to 176p, beyond which 201p is possible, with a closing price above 181.047p permitting him to "relax".

Ian Gordon is already relaxed about the Barclays story. The Investec Securities banks analyst upgraded Barclays from 'sell' to 'buy' in August last year, a decision based solely on the China-led crash, which wiped over 15% off the lender's share price.

Last month's fourth-quarter update proved to Gordon that chief executive Jes Staley "is willing to act with sufficient speed and precision to make >10% return on tangible equity in 2018e a reality". It's why the analyst made Barclays his "preferred FTSE 100 bank".

Now, ahead of Barclays' full-year results on 1 March, Gordon repeats his 'buy' rating, although he trims his price target from 260p to 245p.

"Barclays always loses money in the fourth quarter of any year, and we expect fourth-quarter 2015e to be bad enough to wipe out virtually all reported earnings from first to third quarters 2015, hence an uncovered dividend for a fourth successive year," he writes.

A "very poor" period for the investment bank, "characteristically dismal" performance in Africa, and anticipated £1.2 billion payment protection insurance (PPI) charge, will mean attributable losses of £1.9 billion in the fourth quarter, reckons Gordon, almost double consensus estimates.

"Be that as it may, ahead of (we hope) a raft of cost initiatives on 1 March, on 0.5x 2017e tangible net asset value, we reaffirm our 'buy'. Barclays is our top pick among the FTSE 100 banks. We expect it to deliver a very healthy "rebound" on a 12-month view."

Look for full-year 2015 attributable profit of £224 million, giving earnings per share of 1.3p, says Investec, with the dividend held at 6.5p and a Common Equity Tier 1 capital ratio - a key measure of financial strength - at 10.7%.

"We are not unduly concerned, despite our continuing expectation of a challenging revenue environment in 2016e," adds Gordon. "We expect further help from expanded cost initiatives and the ongoing run-down on Non-Core.

"Many of these benefits are already 'locked in' given existing disposals (e.g. Portugal) where the risk-weighted assets have yet to drop out and, we think, a 'pre-determined' c.£0.4 billion year-on-year decline in deferred income recognition."

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