Stock Markets
Analysis-Barclays maps uncertain route to a simpler, stronger future
© Reuters. FILE PHOTO: A branch of Barclays Bank is seen, in London, Britain, February 23, 2022. REUTERS/Peter Nicholls/File Photo
By Sinead Cruise, Lawrence White and Iain Withers
LONDON (Reuters) – Barclays, unveiling its biggest revamp since 2016, sought to appease investors seeking a clearer route to less volatile returns.
Yet the British lender’s plan to dedicate fewer financial resources to its investment bank is at odds with ambitions to expand in some of the unit’s higher-risk businesses, investors said.
Barclays has historically devoted much of its capital to investment banking, roiling more conservative shareholders who say other businesses posting more reliable profits have been under-invested as a result.
The bank will continue to allocate the lion’s share of its firepower to investment banking, and while a bigger push into domestic lending is broadly welcomed, some analysts and investors are unconvinced the bank can grow market share enough to meet its lofty revenue goals, against strong competition and a skittish UK economy.
Barclays’ long-awaited strategic update presented on Tuesday will have the bank return at least 10 billion pounds ($12.66 billion) to investors and reorganize into five units from the current three business lines, a move it said would create a simpler and better balanced bank.
This so-called “re-segmentation” aims to give investors greater transparency of performance in each division, unlike the previous structure which reported corporate lending and investment banking revenues together, the bank said.
In a key part of the overhaul, Barclays will reduce the share of risk-weighted assets (RWA) devoted to its investment bank to around 50% by 2026 from about 63%.
In turn, the bank plans to deploy around 30 billion pounds more to its UK consumer, corporate lending and private banking arms that generate higher returns.
“Today’s announcement from Barclays is welcome as far as it goes,” said Jeremy Hosking, founder and portfolio manager at Hosking Partners.
“But shareholders are still waiting for a diagnosis of the 15-year share price undervaluation of the bank, in particular as to whether it is cyclical or structural.”
Barclays shares rose as much as 9.4% on Tuesday and closed up 8.6% – their biggest daily gain since November 2020. In the last 12 months, they have lost over 7%, compared with a 4.2% rise in a key regional banking index
The average returns on tangible equity (RoTE) in the businesses the bank has pledged to invest in ranged from 18% to 31% in the two years to end-2023, compared with a more modest 10% at the investment bank, company figures show.
By reallocating its capital, Barclays says revenue will grow to around 30 billion by 2026 from 25.4 billion pounds in 2023.
Scepticism abounds. Many analysts and commentators said the rejig did not reflect a “de-risking” of the investment bank but rather an ambition to grow other units faster to reduce the investment bank’s outsized influence on group profit.
And with such strong competition posed by NatWest Group in British small business lending, Lloyds Banking Group (LON:) in mortgages and HSBC in corporate lending, Barclays’ big UK bet is not guaranteed to succeed.
STANDING STILL
What is more, the capital underpinning Barclays’ investment bank will still far exceed that deployed by rivals, such as BNP Paribas (OTC:) and UBS in their investment banks. Both lenders boast healthier valuations than Barclays and similarly handsome shareholder payout plans.
Within the investment bank, Barclays intends to further grow its financing business, Chief Executive C.S. Venkatakrishnan told investors on Tuesday, referring to the lucrative but potentially risky practice of lending money to large institutional clients against stocks or bonds as collateral.
Barclays has invested heavily in the business, growing revenues from 1.8 billion pounds at an undisclosed point to 2.9 billion in 2023, he said.
Analysts at Citi estimate the investment bank is expected to account for 2.7 billion pounds of the targeted 4.6 billion-pound increase in group revenues by 2026, a goal they describe as “highly ambitious”.
Those revenue goals, they say, rely on a 900 million pound bounce in the industry’s overall fee pool over the period and 1.2 billion pounds of growth in equity capital markets and advisory fees as well as additional sales to existing clients.
Other investors and analysts voiced doubts whether the plan will offer as much reassurance as executives hope.
“The buybacks will help, but the second part of the picture is growing revenue,” Sajeer Ahmed, portfolio manager at Aegon (NYSE:) Asset Management, told Reuters.
“Fund managers will treat this part of the investment case with scepticism. In particular, because it involves growing the investment bank.”
Growth will require a breakthrough in select segments, namely the buying and selling of European interest-rate products, equity derivatives and securitisation where Barclays is currently ranked outside the sector’s top five players.
Rupak Ghose, a corporate strategist and financial markets analyst, said the strategic objectives outlined by Barclays were unlikely to bolster the bank’s shares over the long term.
“This is a big return of capital but I fear a dead cat bounce,” he said.
($1 = 0.7897 pounds)
In a turbulent market environment, Five9 (NASDAQ:) Inc’s stock has touched a 52-week low, reaching a price level of $28.74. This significant downturn reflects a broader trend for the cloud software company, which has seen its shares plummet by -58.79% over the past year. Investors are closely monitoring Five9’s performance as it navigates through a period of heightened volatility and shifting industry dynamics, which have contributed to the stock’s current valuation at this low point. The company’s efforts to rebound from this position will be under scrutiny in the coming quarters as market participants look for signs of a strategic turnaround or further indications of market pressures.
In other recent news, Five9 Inc . has achieved an annual revenue run rate exceeding $1 billion in Q2, a significant milestone despite lowering its annual revenue guidance by 3.8% due to customer budget constraints. The company’s adjusted EBITDA margin rose to 17% of revenue, contributing to a strong operating cash flow of $126 million. The company also confirmed plans to reduce its global workforce by approximately 7% by the end of 2024, a strategic move projected to cost between $12 million and $15 million.
Five9’s recent acquisition of Acqueon, a firm specializing in proactive outbound omnichannel customer engagement, aims to expand its AI offerings and bolster its growth. This move is in line with the company’s focus on managing expenses and improving profitability, with initiatives like FedRAMP and expansion into India anticipated to improve gross margins.
In their analysis, Piper Sandler maintained an Overweight rating for Five9, with a steady price target of $47.00, while Needham and BTIG both maintained a Buy rating with price targets of $48.00 and $45.00 respectively. These ratings reflect the firms’ confidence in Five9’s strategic positioning and potential for growth, despite the current challenges and workforce reduction.
InvestingPro Insights
Amid the current market conditions, Five9 Inc’s recent performance can be put into perspective with select data from InvestingPro. The company’s market capitalization stands at roughly $2.15 billion, indicating the size and scale of the business amidst its challenges. Despite the stock’s decline, analysts are showing a hint of optimism, with 20 analysts having revised their earnings estimates upwards for the upcoming period. This could signal a potential turnaround in sentiment or underlying business performance.
Importantly, Five9’s liquid assets are reported to surpass short-term obligations, suggesting that the company maintains a degree of financial flexibility to navigate its current difficulties. Furthermore, while the stock is trading near its 52-week low, it’s worth noting that the relative strength index (RSI) suggests the stock is in oversold territory, which can sometimes precede a rebound in share price. Investors looking for comprehensive analysis and additional InvestingPro Tips on Five9 can find more insights, including 14 other tips, at https://www.investing.com/pro/FIVN.
In terms of financial health, the company operates with a moderate level of debt and is expected to become profitable this year, according to analysts’ predictions. These elements may offer some solace to investors considering the stock’s substantial price fall over the last year. For those seeking a deeper dive into Five9’s valuation and future prospects, the InvestingPro platform provides a fair value estimate of $45.04, which is considerably higher than the current trading price, suggesting potential undervaluation.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
TD Cowen reiterated its Buy rating on shares of Terns Pharmaceuticals (NASDAQ:TERN), following the company’s investor call. The call was held to manage expectations for the upcoming Phase 1/2 CARDINAL study data for chronic myeloid leukemia (CML). The firm noted the challenges in measuring the efficacy endpoint (EP) due to disease progression and the absence of treatment switch guidelines, which makes major molecular response (MMR) a challenging efficacy endpoint for Phase 1/2 trials.
The interim Phase 1/2 data aims to evaluate descriptive efficacy signals, considering patients’ baseline BCR-ABL levels and treatment history. The analyst highlighted that the once-daily (QD) dosing and the lack of food effect could potentially enhance the quality of life for patients compared to other allosteric tyrosine kinase inhibitors (TKIs).
Terns Pharmaceuticals has been focusing on the development of improved treatment options for CML. The company’s approach to dosing, which does not require food intake, may offer a more convenient alternative for patients, potentially leading to better adherence and outcomes.
The topline data from the 6-month Phase 1/2 CARDINAL study is anticipated to be available in 2025. This data will provide further insights into the treatment’s efficacy and safety, which are critical factors in the ongoing development and potential approval process.
Investors and stakeholders in Terns Pharmaceuticals are expected to closely monitor the progress of the CARDINAL study, as it could have a significant impact on the company’s future prospects and position in the CML treatment landscape.
In other recent news, Terns Pharmaceuticals has experienced significant developments. The biopharmaceutical company reported robust earnings and revenue results, with Mizuho Securities maintaining an Outperform rating on Terns shares, citing strong enthusiasm for the company’s drug, TERN-701, a potential treatment for chronic myeloid leukemia.
The firm expects the first interim Phase 1 CARDINAL study data for TERN-701 in December.
Terns also announced the appointment of Elona Kogan as its new chief legal officer, a move that underscores the company’s strategic development and pipeline advancement.
The company also secured an extension of its office lease in Foster City, California, through 2027, reflecting Terns Pharmaceuticals’ operational stability and long-term planning.
In terms of clinical trials, Terns has made progress in its ongoing Phase 1 study of TERN-701, with interim findings suggesting the drug can be administered once daily with or without food.
This development, coupled with the forthcoming Phase 1 data for another of Terns’ drugs, TERN-601—an oral GLP-1 receptor agonist for obesity—expected next month, underscores the company’s commitment to innovative therapies.
These recent developments, from financial performance to executive appointments and clinical trials, highlight Terns Pharmaceuticals’ ongoing efforts to advance its strategic objectives and deliver on its mission. The company’s activities are closely watched by investors and industry analysts, including those from Mizuho Securities, who continue to support the company’s potential.
InvestingPro Insights
As Terns Pharmaceuticals (NASDAQ:TERN) navigates the complexities of its Phase 1/2 CARDINAL study, investors are keeping a keen eye on the company’s financial health and stock performance. According to InvestingPro, Terns holds more cash than debt, which is a positive signal for financial stability. Additionally, with five analysts revising their earnings upwards for the upcoming period, there is a sense of optimism about the company’s potential performance.
However, it’s important to note that Terns is not currently profitable and has been quickly burning through cash, which may raise concerns about long-term sustainability. The company’s P/E Ratio stands at -5.71, reflecting these profitability challenges. Despite these hurdles, Terns has managed a 1 Year Price Total Return of 45.42%, indicating some investor confidence in the company’s growth prospects. The anticipated fair value from analysts stands at 15 USD, while the InvestingPro Fair Value is calculated at 5.8 USD, highlighting a divergence in valuation perspectives.
For those looking for more in-depth analysis, additional InvestingPro Tips on Terns Pharmaceuticals can be found at https://www.investing.com/pro/TERN, offering a comprehensive look at the company’s financial details and stock performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
PARIS (Reuters) – French President Emmanuel Macron discussed the importance of maintaining support for Ukraine and the need for a ceasefire in Gaza during talks on Friday with German Chancellor Olaf Scholz, said the French presidency.
Regarding Ukraine, the two leaders expressed their determination to support the country “for as long and as intensively as necessary” in its war against Russia, the Elysee said.
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