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Why the Undervalued Barclays Share Price is a Better Buy Than Lloyds

ftse 100

Barclays share price is up by almost 1 percent as UK stocks jump. The FTSE 100 is up by more than 1.54%. Other banks like HSBC and Lloyds share prices are up by 0.57% and 0.50% respectively. The bank’s shares are now trading at 113.92p, which is higher than this week’s low of 109.82p.

So, is Barclays share price a buy?

As all other industries, banks are going through their biggest tests after the past financial crisis. We saw this in the first quarter earnings releases when banks announced billions of dollars-worth of provisions. In the quarter, Barclays allocated more than £2.1 billion in provisions, up from £400 million a year ago.

And yesterday, the Federal Reserve delivered a difficult warning to American banks. When delivering its stress test results, the Fed said that the pandemic could trigger $700 billion of loan losses for banks in the US. As a result, the bank announced that all banking groups that went through stress test would be barred from issuing dividends and buying back their shares.

Obviously, this was a symbolic move since these banks voluntarily halted these activities in March. In the UK, the Bank of England barred banks, including Barclays from returning capital to investors.

Barclays segments

For starters, Barclays operates under two segments: international and UK. In the UK, the bank is mostly known for its consumer lending through its Barclaycard product, which is the biggest credit card company in the UK. With interest rates at historic lows, I expect Barclays to benefit from higher yields because credit cards charge a higher rate than mortgages. Still, with higher yields comes higher risks. With the unemployment rate in the UK surging, I expect that delinquency rate will continue to rise.

Another advantage for Barclays and Barclays share price is the deposit side of banking. As the third-biggest retail bank, the company has a leading market share in current accounts. These funds provide it with the lowest cost source of funding.

The international segment is what I love most about Barclays. In this segment, the bank does a lot of investment banking, which also includes its FICC operations. Also, the bank is a leading bank in the debt market. With volatility in the market rising, I expect the high-margin investment bank to provide the needed support.

Barclays share price valuation

A good way to value a bank is to consider its price to book ratio and how it compares with that of competing companies. As shown below, Barclays has a price to book ratio of 0.29. This is lower than that of its key peer banking groups such as Deutsche Bank, Credit Suisse, Lloyds, and HSBC. Another metric you need to look at when valuing a bank is its Tier 1 Capital Ratio.

According to S&P Global, Barclays had a CET ratio of 13.45, which is better than that of Lloyds and Standard Chartered.

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Barclays share price analysis

The daily chart shows that Barclays share price is stuck at the 50-day exponential moving average and is slightly below the 100-day EMA. Also, the price is between the 23.6% and 38.2% Fibonacci retracement level. It is also above the ascending trendline, which is drawn by connecting the lowest levels on May 14 and June 25. This means that the price is likely to continue rising as bulls attempt to test the 100 EMA at 120p. a break below the ascending trendline will see Barclays share price continue to decline.

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