Barclays is one of the highest-performing stocks on the FTSE 100 since the Bank of England hiked interest rates to 1% in early May. As inflation looks set to hit double-digits in October this year, where are Barclays shares likely to go?
Barclays shares have fallen 20.8% year-to-date, however with the rise in interest rates and a steady mortgage and loans demand for the group, now may a good time to watch the Barclays share price after the drop?
Interest Rate Hikes
The Bank of England’s decision to raise interest rates by 0.25% to 1% signalled an urgent bid to curb skyrocketing 7% inflation, which is currently projected to hit 10% in October this year.
The Monetary Policy Committee voted to raise #BankRate to 1%. Find out more in our #MonetaryPolicyReport: https://t.co/h3ewfvAPYp pic.twitter.com/I5q7mliWza
— Bank of England (@bankofengland) May 5, 2022
The move represents the next step in a series of anticipated hikes, with analysts predicting a rise to 1.25% at the next meeting in June, and rates as high as 2.5% year-on-year.
However, the bad news for borrowers is great news for Barclays, with the banking group’s profits set to rise on the back of higher interest rates.
Financial Results
The bank reported a 10% rise to £6.5 billion in group income over Q1 2022, alongside a pre-tax profit of £2.2 billion.
The firm enjoyed an 11.5% return on tangible equity over Q1, with a tangible net asset value per share of 294p against 291p year-on-year.
The company’s strong financial performance would have put it in a great place heading into 2022, and Barclays announced strong growth across all sectors as global markets and high rates of UK mortgage lending boosted the bank’s revenue in its consumer and payments business.
Expensive Accident
However, Barclays suffered a significant dent in its balance sheet through a well-publicised incident, which saw a trader accidently over-issue US securities and lead to a £500 million fine from the US Securities and Exchange Commission (SEC).
The loss increased the group’s operating costs to £4.1 billion from £3.6 billion in Q1 2021.
The company subsequently reported the suspension of its scheduled £1 billion share buyback scheme for the second time, however the bank confirmed that it intended to restart its programme as soon as possible.
Outlook
The bank reported estimated operating costs for the entire year of £15 billion, and confirmed a target return on tangible equity of over 10% for 2022.
Barclays assured investors that its diversified income streams put it in a good position to weather market volatility and turbulent economic conditions.
The company highlighted a target CET1 ratio between 13-14%, along with its intention to re-launch its share repurchase scheme at its earliest opportunity.
Is it a Buy?
The recent analyst consensus represents a positive outlook for Barclays, with 11 analysts rating the shares as hold, one as overweight and nine rating Barclays shares as a buy.
Given the positive consensus from brokers, and the potential for higher rates in the future, the Barclays share price will be worth keeping an eye on.