What did a 19% surge in first-quarter profit before tax on Wednesday (30 April), with earnings per share (EPS) up 26%, do for the Barclays (LSE: BARC) share price?
The gains were mainly driven by the investment banking division. It was global investment banking that crushed so many financial firms during the 2008 crisis. But now it’s helping Barclays keep ahead of soft UK lending.
We saw a return on tangible equity (RoTE) of 14%, with a Common Equity Tier 1 (CET1) ratio of 13.9%, and a liquidity coverage ratio (LCR) of 175%. It seems the bank is awash with liquidity.
The share price? At the time of writing it’s down 2.5%. You sometimes have to wonder what investors want from a stock.
Valuation
So what about the prospects for the next 12 months and beyond?
Management intends to raise capital returns in 2025 progressively above 2024 levels. And they hope to hit a total capital return for the three years between 2024 and 2026 of at least £10bn. Ten billion! Are the words ‘cash cow’ ringing in my ears, or what?
The plans is to return this capital mainly by way of share buybacks. Total dividend cash should remain around the same level as 2023. But the falling number of shares in circulation should steadily boost per-share dividends.
The forecast dividend yield for the current year stands at a modest 2.8%. Forecasts suggest it could rise to 3.8% by 2027. It wouldn’t be the biggest in the bank sector, with Lloyds Banking Group offering 4.3% and HSBC Holdings up at 6.1%. But I reckon Barclays could beat its peers in share price gains.
Some guesses
What’s a fair price-to-earnings (P/E) ratio for a FTSE 100 bank? The long-term average for the index is about 15. So let’s plump for 10 for a bank to cover uncertain economic conditions.
Barclays is on a forward P/E for 2025 of just 7.4. For that to rise to my suggested 10, it could need the share price to rise by around 35% to reach 403p. The current broker consensus is at 344p, but the highest is 410p.
Looking forward a couple of years, the mooted 2027 P/E is down at a lowly 5.3. To get that up to 10 we’d need to see a Barclays share price of something like 564p in that timescale.
That would be a near doubling over the price at the time of writing.
Realistic
I must stress that I’m looking at just one simple measure here. And different banks’ businesses will not depend on the same things in the same proportions. Of the three I mention here, Lloyds is wholly UK-retail focused. HSBC is heavily exposed to China. And Barclays retains its US investment banking business.
The three could move very differently, and Barclays might be at significant risk from US tariffs and a trade war.
My prediction? Well, let’s call it more speculation. But it would be nice it if comes good. Barclays is firmly on my list of FTSE 100 stocks to consider for the long term.
