According to current City forecasts,Barclays(LSE: BARC) is one of the FTSE 100s fastest growing companies.
Analysts are forecasting earnings per share growth of 45% this year, followedby 17% during 2016. Thats the kind of growth thats more suited to a tech company, not one of the UKs largest banks.
However, looking through Barclays full-year 2014 results release, published at the beginning of March, there is reason to believe that the bank could meet these lofty forecasts.
Unlike many of its banking sector peers, which are struggling with rising costs and falling returns on equity (a key measure of bank profitability), Barclays business is improving across the board.
For example, during 2014 BarclaysPersonal and Commercial Bank (PCB) saw income rise 1% to 8.8bn. Bad debts fell 22% to 0.5bn, the cost income ratio fell to 62% (after restructuring charges) and profits jumped29% to 2.9bn. Moreover, return on tangible equity at the banks African armincreased to 12.9% during 2014, from the previously reported 11.3%. Barclaycard delivered a 6% rise in income.
Whats more, Barclays non-core business the banks division responsible for selling off non-core, toxic assets reported reduced losses of1.2bn, down from 1.6bn as reported during 2013.
All of these factors helped Barclays report adjusted profits of 5.5bn for 2014, ahead of analysts estimates, which were calling for adjusted profits of 5.3bn. Unfortunately, the companys unadjusted net income missed estimates.
And Barclays management expects to report a similar performance for 2015 and 2016. The group continues to slash costs as part of its multi-year Project Transform and further non-core asset disposals are expected.
Additionally, Barclays troubled investment bank reported an uptick in business during the fourth quarter of last year. Management believes that this should continue throughout 2015, which should only boost growth.
Can the bank be trusted?
Unfortunately, while Barclays underlying business is improving, the bank has consistently failed to meet optimistic City forecasts in the past.For the past four years Barclays reported unadjusted net income has missed City expectations by between 10% and 35% every year.
Theres no reason to believe that the bank will reverse this trend any time soon. Even though Barclays is making progress, I think its unlikely the company will meet analysts forecasts this year.
With this being the case, it looks as if analysts forecasts for Barclays are too good to be true.
It’s difficult to trust Barclays when the company has made so many mistakes in the past.
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