The last 12 months have been a terrific time to be a Barclays (LSE:BARC) shareholder. The UK’s second largest bank has seen its market capitalisation rise by a staggering 75% since March 2024. And following its latest results, it’s not hard to see why.
Total income in 2024 rose a respectable 6% to £26.8bn. But it was the firm’s 23% jump in pre-tax profits, from £6.6bn to £8.1bn, that stole the show. This paved the way for yet another impressive share buyback scheme of £1bn that’s already underway, paired with a 5% bump in dividends, marking the fourth consecutive year of shareholder payout hikes.
Needless to say, this is all rather positive. But as we move further into 2025, investors are wondering whether the bank can keep up this momentum or whether now’s the time to start taking a profit.
Operational progress
The recent acquisition of Tesco Bank offered a welcome boost to earnings. And overall, the bank’s lending activities have steadily become more profitable. At least, that’s what the net interest margin suggests, which reached 4.5% in the fourth quarter of 2024 versus 4.02% at the start of the year.
Operating margins also moved in the right direction as cost-cutting initiatives start paying off. Management successfully delivered £1bn of gross cost efficiencies in 2024, bringing the group’s cost/income ratio to 62%, slightly ahead of the targeted 63%.
Meanwhile, the group’s large investment banking division also delivered a robust performance, with US activity seemingly starting to pick up in the latter half of 2024, post-US election. With that in mind, seeing the Barclays share price rise so aggressively makes a lot of sense, even more so given the stock’s cheap initial valuation.
What’s next?
For the most part, institutional analysts appear to be quite bullish on Barclays shares. Fifteen out of 19 currently rate the stock as a Buy or Outperform with a 12-month average price target of 350p.
Compared to the current share price, that suggests investors can expect to earn a 12.5% return. If this proves accurate, a £5,000 investment today could potentially be worth £5,625 by March next year. And that’s before factoring in the returns from the recently hiked dividends.
However, as encouraging as this sounds, forecasts should be taken with a pinch of salt. It’s not all sunshine and roses at Barclays, as management has announced a £90m provision to cover the cost of any potential claims relating to the ongoing motor financing scandal. That’s significantly less than the £1.15bn Lloyds has put aside, but just as with all banks facing this looming threat, the potential cost could be considerably higher.
Despite this challenge, I remain cautiously optimistic for Barclays’ long-term outlook. And with the bank’s valuation still looking reasonable at a price-to-earnings ratio of 8.9, investors may want to consider taking a closer look. For my portfolio however, I already have sufficient exposure to the financial sector, so I’m not looking to add any shares to it today.
