On the onehand,Barclays is one of the mostrecognisablebrands in the British banking industry, with a global presence and more than 1trn of assets.Whileon the other, Virgin Money is an upstart, with less than 100 branches and a limited product offering.
That said, Virgins size doesnt appear to be holding the company back. Customersare flocking to the banks offering. For example, for the six months to 30 June 2015 Virginsunderlying pre-tax profit jumped 37% year-on-year to 81.8m.
But this kind of growth doesnt come cheap. Virgin currently trades at a forward P/E of 16.5, a premium valuation that may put some investors off. Whats more, the banks prospective dividend yield of 1.0% is nothing to get excited about.
However, Barclays sharescurrently trade at a forward P/E of 11 and supporta dividend yield of 2.6%. So, Barclays offers incomeand value while Virgin offers growth, which makes the two banks the perfect partnership for your portfolio.
A mix of growth and value
Barclays is in the middle of a drastic restructuring. The bank fired its previouschief executiveAntony Jenkins, after only three years at the helm, during July and brought in turnaround expertJohn McFarlane on an interim basis toaccelerate the pace of execution.At the time, this move shocked the market but it wasnt wholly unexpected.
Indeed, Barclays has been struggling to turn around its struggling international business and investment banking division for years now, and progress has been slow. The banks earnings per share have fallen by 20% over the past five years. Barclays shares have underperformed the wider FTSE 100 by 30% over the same period.
Still, for value hunters Barclays shares present a lucrative opportunity. For example, the banks core business is growing steadily and reported a return on equity a key measure profitability of 11.9% for full-year 2014.
However, Barclays non-core operations are holding the bank back. The groupsinvestment bank reported a return on equity of only 2.9% last year and Barclays bad bank, which is theequivalent of a financial dustbin, is still racking up multi-million pound losses every year.
Barclays is in the process of winding down its bad bank, but the process is taking time. With a new CEO, it is believed that the process of selling off toxic assets will be accelerated. So, investors who are prepared to wait should be able to reap the rewards as Barclays returns to health. And as Barclays cleans up its act, Virgin will take up the slack.
City analysts expect Barclays earnings per share to jump around 30% this year and a further 22% during 2016.
The bottom line
All in all, if you’re looking to add exposure to the UK financial sector to your portfolio, you can’t go wrong with a mix of Barclays and Virgin’s shares.
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