The Barclays (LSE: BARC) share price surged today (24 October) after the bank reported strong third-quarter results, surpassing market expectations. The price rose 4.2% in morning trading, rising above the 246p level – the highest it’s been since 29 October 2015.
Pre-tax profit came in at £2.2bn for the July to September period, up 18% from £1.9bn in Q3 last year. This exceeded the bank’s own analyst consensus, which eyed a pre-tax profit of ‘only’ £2bn.
The growth was driven by higher revenues and better cost management. In particular, its investment arm led the charge with 6% year-on-year growth to £2.9bn.
Net profit was £1.6bn, a 23% increase on the same period last year.
Total income grew by 5% to £6.55bn, with Net Interest Income (NII) for the quarter reaching £2.8bn. The bank also raised its full-year 2024 outlook for NII to over £11bn, reflecting optimism about its core banking operations.
In the report it reaffirmed its target for a return on tangible equity (RoTE) of more than 10% in the near term, aiming for over 12% by 2026. Additionally, it plans to return at least £10bn to shareholders between 2024 and 2026 through dividends and share buybacks, prioritising the latter.
Looking ahead
Overall, it’s a positive result that could keep the price climbing even further this year. It’s already up 82% since last year’s Q3 results and doesn’t show any signs of slowing down.
But no amount of strong performance can protect it from economic and market risks. Changes in interest rates and inflation, plus economic slowdowns could hurt the bank’s profitability. Foreign exchange risk is another concern as Barclays generates a significant portion of its income from outside the UK. Currency fluctuations, particularly between the pound and the US dollar or euro, can impact its earnings when they’re translated back into local currency.
But for potential investors, key concerns are usually the share price and dividend forecast. What kind of returns should I expect from my Barclays shares going forward?
Valuation and forecast
Barclays’ trailing price-to-earnings (P/E) ratio has more than doubled over the past year, rising from 3.6 in October 2023 to 8.7 today. It’s now above the European banks industry average of 7.7 and higher than Lloyds, HSBC and NatWest. That’s not unusual with a rapidly rising price but it could limit growth potential.
Fortunately, with earnings forecast to improve, its forward P/E ratio is a more attractive 6.7.
Looking at analysts’ forecasts, I see an average 12-month target of £2.73, up 14.5% from today. That’s not much to get excited about, as it’s only slightly above the average returns of my index funds.
Fortunately, the dividend forecast is a bit more promising.
The current yield of 3.4% is forecast to keep rising, predicted to reach 4.2% by the end of 2026. That would place it nicely above the industry average. Assuming those estimates hold (which they may not), I could expect to see anything from 18% to 22% returns on my shares in the coming years.
