The Barclays (LSE: BARC) share price has completely recovered from the stock market crash in 2020 and is now higher than its pre-Covid price. This is not surprising, especially considering annual profits reached a record high in 2021. This indicates that there may be further to rise. On the other hand, due to the current geopolitical tensions in Eastern Europe, and the consequent risks of economic shocks, there are equally risks that must be considered.
Recent results
Barclays’ full-year 2021 results were excellent across the board. For example, profit before tax reached £8.4bn, which was almost treble the £3.1bn achieved in 2020. Such a strong performance was enabled by the bank’s diversified business model. For instance, the Corporate and Investment Bank segment saw a profit before tax of £5.8bn. This highlights how the business model extends far beyond just its lending business, a factor that differentiates it from many other banks.
The strong results have also enabled the company to adopt a generous capital returns programme. This includes a share buyback programme of £1bn and a final dividend of 4p per share. As such, at the current Barclays share price, the dividend yields around 3.7%. This is in line with other FTSE 100 stocks and is certainly a strong reason to buy the shares. The share buyback programme should also have a positive effect on the share price.
Some risks
The current geopolitical tension in Eastern Europe is likely to have some negative effects for Barclays, especially as it’s a global bank. This is a reason why the Barclays share price fell around 9% last Thursday. The recent news that many Russian banks will be excluded from Swift, which is pivotal for the smooth transaction of money worldwide, could affect Barclays indirectly.
I’m also worried that the company’s strong investment bank performance may not be repeated next year. This is because capital markets were extremely active in 2021, with many initial public offerings (IPOs). As Barclays often acts as the underwriter in these IPOs, this large amount of activity benefited it greatly. As such, if there is a lower amount of capital markets activity in 2022, which certainly seems likely, Barclays may suffer. Lower profits are the likely result.
Is there room for the Barclays share price to rise?
After the bank’s recent results, the Barclays share price currently has a price-to-earnings ratio of around 5. This indicates to me that the shares are severely undervalued, and a drop in profitability for 2022 is already factored in.
It means I am continuing to buy Barclays shares for my portfolio as I think they are keenly priced at present. The current macroeconomic environment is also far more stable than during the peak of the pandemic, and interest rate rises could aid the bank’s profitability. Therefore, I’m willing to disregard the risks and buy more Barclays shares now.
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Stuart Blair owns shares in Barclays. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
