As the COVID-19 pandemic enters a second phase, investors in Barclays need to balance the woes of retail with the boom on the investment banking side. The question now with the stock trading near the 100p level, versus the low of the year at 73p, is which of the key fundamental factors at play for Barclays share price will win the day?
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Barclays share price exposed to £4.3bn bad debt charges
The headline grabbing issue currently is of course the bad debt charges standing at £4.3bn. However, due to the vagaries of furlough and it being difficult to know how long households can stretch savings from the time of the initial pandemic shock in March, this provision could be anything from a tip of the iceberg, to a high-water mark. Against this there will no doubt be the benefits of Barclays being able to move to accelerate branch closures and trim costs as progress towards a cashless and perhaps increasingly branchless banking service continues.
Lending margins: a license to print money
On the plus side we are looking at a company where despite the structural decline of the banking sector since the Global Financial Crash in 2008, aspects of the business are still strong. While it may not be something that most financial analysts emphasise, a near zero interest rate environment, and one which is likely to swing to the negative side. While most commentators are refraining from saying the banks are profiteering, maintaining mortgage rates some 3% above the Bank of England base rate of 0.1% should be a recipe to print money. The recent stamp duty reductions underline this idea. On the personal loan and credit card side the margins are even more expansive.
Betting on M&A benefits
But it may be that the ill wind of the pandemic actually serves Barclays to play to its strengths, rather than the vulnerable retail banking side. A positive side effect of the pandemic has been an increase in companies shoring up their balance sheets and raising cash from investors. There has also been a rise in M&A, as opportunities and bargains have sprung up in the sectors faring best and worst in the current exceptional environment. A case in point has been the takeover of William Hill by Caesars Entertainment. In this deal Barclays was among five investment banks sharing fees of up to £165m.
Technical outlook: Barclays share price forecast to reach 140p
Balancing the factors together regarding Barclays, one is also mindful of where the stock is in the one year trading range. At the end of 2019 the shares were nudging 200p, and are close to half this level currently. From a charting perspective the key here may be the July 98p floor. The shares bear trapped below this during September, but for much of October this has become new support, suggesting the start of an inverse Head & Shoulders pattern – a bullish development. As a chartist I would be looking for a break of neckline resistance to deliver an implied 140p target – essentially a revisit of mid 2020 resistance for Barclays shares. At this stage only a weekly close back below the July floor would really delay the technical recovery argument at Barclays.
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4. Choose your position size
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Barclays share price daily chart
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