If you’re looking to splash the cash on the FTSE 100 there are plenty of great bargains to be had. Britain’s blue-chips may have recovered some ground in the first few weeks of 2019, but there remain plenty still trading below the bargain benchmark of 10 times or below.
Barclays (LSE: BARC) for one has been attracting some decent buying attention since the turn of January. Share-pickers have been drawn in by its dirt-cheap valuation, a forward P/E ratio of 7.1 times. I’m sure that its inflation-bashing yields of 5% and 5.6% for 2019 and 2020 respectively have attracted the attention of many an income-seeker too.
I’ll nail my colours to the mast and declare that I’m not tempted to buy the bank right now. Regular readers will know how bearish I am on Barclays and its domestically-focused rivals, a view that I repeated in recent days with an analysis of RBS.
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And fresh news today has reinforced my bearish take on the broader British banking sector.
Insolvencies surging
The likes of Barclays are facing an uncertain future as the slowing economy threatens to smack revenues growth and deliver a painful surge in the number of bad loans on their books. It gives me no joy to share latest numbers from the Insolvency Service which reveal the extent of the problem facing the country’s banks.
The government body advised that some 115,299 individuals filed for insolvency in 2018, up 16.2% year-on-year and representing the highest number since 2011. This is the third annual rise on the bounce and was driven by the number of individual voluntary arrangements (IVAs) soaring to an all-time high of 71,034, up by almost a fifth year-on-year.
The Insolvency Service revealed the rising pressure on UK business as well. The number of underlying corporate insolvencies surged 10% last year to number 16,090, the largest year-on-year increase since the financial crisis in 2009.
To put this into context, this represents one in every 242 companies, and one in every 401 adults, in Britain hitting the financial buffers. And the numbers threaten to worsen in 2019 and quite possibly beyond as the country heads down the Brexit path.
It’s a trap!
I’ve said before that City forecasts predicting that Barclays will enjoy sustained earnings growth over the medium term — of 4% in 2019 and 10% next year respectively — are looking a tad optimistic given that economic indicators continue to worsen. Given the likelihood of swingeing downgrades in the months ahead, that rock-bottom valuation is a little less tempting.
And of course, this poor profits outlook casts some doubt over the bank’s ability to keep lifting dividends at a heart-pounding pace, meaning that predicted dividends of 8p for this year and 8.9p next year could appear to be top-heavy too. There’s a galaxy of great Footsie dividend shares to buy today, but Barclays is not one of them in my opinion. In fact, I’d sell out of it now, given its rapidly-worsening profits picture.
