Shares in Barclays (LSE: BARC) (NYSE: BCS.US) edged lower this morning despite the banks adjusted pre-tax profits rising by 9% to 1,848m during the first quarter of 2015, while operating expenses fell by 7%.
The flies in the ointment, as always, were the slow speed of Barclays progress, and the vast costs associated with the banks alleged past misdeeds. During the first quarter, Barclays added an additional 800m to its provisions for the cost of foreign exchange rigging investigations, taking the total provision to 2,050m.
Barclays also set aside another 150m for PPI compensation, and the combination of these new provisions dragged the banks reported profits down by 26% to 1,337m.
Progress behind the scenes?
Todays results did contain a number of positives: pre-tax profits from the banks investment division rose by 37%; those from Africa Banking were up 23% and from the UK bank by 14%. The adjusted cost: income ratio fell from 67% to 64%, highlighting ongoing progress with cost savings.
These gains were reflected in the banks adjusted return on average shareholders equity, which rose to 7.6%, up from 6.5% during the first quarter of 2014. Thats still lower than Id like to see, but its a welcome improvement.
There was good news on the capital front, too: Barclays Common Equity Tier 1 (CET1) ratio rose from 10.3%, at the end of 2014, to 10.6%.
The only problem is that this is all taking so long: shareholders, including me, need to ask whether we could earn more attractive returns on our money elsewhere.
Patience could pay off
Todays results suggest Barclays full-year results should be in line with current forecasts: the bank reported adjusted earnings per share of 6.5p, versus full-year forecasts for earnings per share of 24.9p.
That means Barclays trades on a 2015 forecast P/E of 10.5 with a prospective yield of 3.3%, falling to a P/E of 8.8 and a yield of 4.5% in 2016. Although better yields are available elsewhere, Barclays low P/E rating and rising yield is attractive, in my view.
Another attraction is that Barclays shares continue to trade at a substantial discount to their book value: todays results give a book value of 337p per share, 28% above the current share price. I expect this gap to gradually close.
This missing ingredient
Investors have been quite patient as Barclays chief executive Antony Jenkins has attempted to turn the group around: one man who may be slightly less patient is the banks new chairman, John McFarlane.
Mr McFarlanes name may be familiar to you from his previous chairmanship, at Aviva, where he laid the foundations of a turnaround that has seen the banks share price rise by 78% in two years.
A repeat performance cannot be guaranteed, but Mr McFarlanes reputation for decisive action and his strong track record in the financial sector suggests that he deserves the benefit of the doubt: I intend to hold onto my Barclays shares, and continue to rate the bank as a solid medium-term buy.
An alternative choice?
If your portfolio is already loaded with banking stocks and you’d like to diversify, I’d urge you to consider one of the five stocks featured in “5 Shares To Retire On“.
This exclusive Motley Fool income report contains details of five, hand-picked stocks the Fool’s market-beating analysts believe could deliver reliable long-term income growth and capital gains.
The companies in the report are well-known — but all benefit from rare advantages that could make a big difference over the long term.
This report is FREE and without obligation.
To receive your copy immediately, click here now.
Has The Market Missed This Hidden Companys Overhaul?
An innovative product that could double sales. A healthy net cash position. The potential to expand into the USA. These are just 3 of the catalysts that we think could catapult the share price of this small-cap company northwards.
But heres the kicker the market seems to be overlooking that this is little-known business has just emerged from a balance-sheet transformation — which is why our analysts particularly excited about the potential growth opportunity on offer here
Click here to discover how this buried company could enrich your portfolio!
Roland Head owns shares of Aviva and Barclays. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.