Barclays slips on Deutsche Bank downgrade

Deutsche Bank downgraded Barclays to ‘hold’ from ‘buy’ and cut its price target to 180p from 255p, saying the stock was more now more of an investment case for 2017-18 rather than 2016.

It said that Barclays’ strategic update, whilst necessary to strengthen the capital position and simplify the group, has reset the clock.

“We think the acceleration of noncore reduction, with accompanying actions on the dividend make strategic sense, and should drive group return on tangible equity closer to core RoTE,” DB said.

However, it said the reality is that following the fourth quarter results and the sale of the Africa business, both group and core earnings per share are lower than previously forecast – now 21.5p and 23.6p respectively for 2018 – while better news on capital will likely be back-loaded into 2017/18.

DB noted that Barclays now intends to pay a dividend of 3p for this year and the next, paid semi-annually from 2016 rather than quarterly.

Deutsche estimates around 8% dilution to core earnings from the sell-down of Barclays Africa.

In addition, it said a more challenging Investment Banking environment, including potentially higher impairment charges than cyclically low-2015 levels, is likely to weigh against continued growth in Barclaycard, Personal and Corporate Banking.

“This is despite Barclays IB’s relative bias to Macro which should hold it in better stead versus peers, and our expectation that costs will continue to fall in the core.”

The German bank said was Barclays is inexpensive at 0.6x tangible NAV, but trades at 7.7x 2018 group EPS, and has limited near-term dividend support.

At 0942 GMT, Barclays shares were down 1.1% to 172.35p.