Analysts have mixed feelings on Barclays 'messy' results

On the face of it, Barclays' first-half results beat City consensus forecasts but analysts had mixed feelings after digging deeper into the numbers.

Barclays reported a £1.2bn loss or the first half of 2017, thanks to a £1.4bn writedown from its sale of a 34% stake in Barclays Africa, a £1.1bn impairment of its remaining holding in the African business and a £700m provision against PPI mis-selling.

However, RBC Capital Markets said the second quarter results were a 6% miss versus consensus due to the non-core bank which has been folded back into the main bank.

The core bank was in line with expectations, RBC said, with the miss driven by greater non-core losses from a faster run-down of risk-weighted assets to £23bn compared to £25bn guidance.

Analyst Laith Khalaf at Hargreaves Lansdown said it was a "perplexing" set of results as "the bad bank is getting better, but the good bank is getting worse".

The core business saw a 25% fall in PBT to £2.99bn, with Barclays UK responsible for most of the fall as profit fell 41% from to £634m thanks to PPI charges and the prior year’s Visa boost.

But he said the completion of the bank's restructuring is a "significant milestone", but now Barclays is in the shape envisaged by management, "the pressure is on to perform".

"To that end its figures for 2017 are far from convincing, with the core bank floundering, and progress actually coming from the non-core. The market will be hoping for a bit more positive news in the remainder of the year, though conduct issues may well overshadow the bank’s performance.," he said.

Investec's Ian Gordon called the numbers "messy" and said it was "hard to take too many incremental positives" beyond regulatory capital being better than expected, with the "theoretical" underlying profit only beating consensus due to a £109m Vocalink gain, with fixed income, currencies and commodities performance again "poor".

Disappointment in underlying revenues, which are a 3% miss on consensus forecasts, was primarily reflecting further weakness within investment banking, driven again by macro where revenues fell 7% on the prior quarter and 25% on the year, which is "particularly poor" in the context of specific underperformance in the first quarter 2017 and continued FX support for the year on year comparatives, notwithstanding weakness already seen from most US peers.

He said the 3p “token” dividend in 2017 was unsurprising given prior guidance, but looking ahead he is optimistic as 2017 "should be the peak year for both non-core losses and restructuring charges", so if regulatory/conduct is not too bad, he expects reported earnings and dividends to "meaningfully recover in 2018 and beyond".

However, Gordon felt the shares are "too cheap" at 0.7 times current tangible net asset value of 284p, leading him to reiterate his 'buy' recommendation and 245p target price.

Broker Shore Capital said the interim results were worse than expected due to weaker than anticipated income performance and a further material PPI, with the statutory PBT of £2.34bn being below the consensus £2.95bn forecast.

Excluding one-off amounts, adjusted PBT was £2.85bn, so still weaker than expected, which ShoreCap noted was primarily due to lower than anticipated income performance with costs and impairments both broadly in line with expectations.

The £2,195m loss on Barclays Africa, partly offset by the recycling of currency translation losses from reserves, "appears to be larger than we expected".

Barclays has reported a £1.2 billion loss or the first half of 2017, thanks to a £1.4 billion write down from its sale of Barclays Africa Group Limited, a £1.1 billion impairment of its holding in the African business, and a £700 million PPI charge.