Lower than expected net operating income and attributable profit for fiscal 2016 resulted in a decline in the share price of Barclays Plc (NYSE: BCS), the second-biggest bank in the UK, to about $11.0 earlier this week. Considering the efforts taken by the bank to streamline its operations, and dilution of non-core assets six months ahead of schedule, as explained below, we anticipate the stock of Barclays to rally in the short-term.
The London-based lender reported fiscal 2016 net operating income of £19.08 billion, down 6% from £20.28 billion in the full year 2015. Analysts anticipated a net operating income of £21.1 billion for fiscal 2016. The fiscal 2016 profit from continuing operations was £2.24 billion, compared to a loss of £3 million in the previous fiscal year.
The bank swung to an attributable profit of £1.62 billion ($2.02 billion) in fiscal 2016, from a net attributable loss of £394 million in 2015. However, it was below the Wall Street consensus estimate of £1.97 billion. On a per-share basis, Barclays reported FY16 earnings of 10.4 pence, compared with a loss of 1.9 pence, and in line with analysts’ estimates.
At the end of fiscal 2016, the common equity tier 1 ratio increased to 12.4%, from 11.4% in fiscal 2015. Similarly, common equity tier 1 capital grew to £45.2 billion in FY16, from £40.7 billion in 2015. The bank also declared a dividend of 3 pence per share for fiscal 2016. The cost to income ratio declined to 87% at the end of December 2016, versus 128% at the end of the prior fiscal year.
To offset Brexit related risks and realize an increase in the net income, the bank is focusing on geographical diversification. The bank anticipates closing its non-core asset division six months before schedule – by the end of June. Thus, considering the swing to profit and positive impact of restructuring, we anticipate the stock to turn bullish in the week ahead.
The stochastic indicator is pointing to a technically oversold scenario. The stock has minor support at 11. Considering the correction underwent by the stock in recent days, a technical bounce back in the stock of Barclays can be expected.
Trading a call option would prove beneficial if the forecast turns out to be true. It would be advantageous to the trader if the call option or its equivalent contract, with a validity period of one week, is bought when the stock trades near 11.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
