Barclays (LSE:BARC) shares have surged 8% over the past week after the banking giant surprised investors with a £500m share buyback and raised its return on equity target.
That means a £10,000 investment made just seven days ago would now be worth around £10,800. Clearly, a tidy gain for such a short holding period.
The rally followed a third-quarter update that, while showing a 7% fall in earnings to £2bn, impressed the market with its renewed focus on capital returns — buybacks.
Barclays said it plans to distribute at least £10bn to shareholders between 2024 and 2026, primarily through buybacks rather than dividends.
The bank also intends to shift to quarterly share buyback announcements. This move has signalled confidence in its capital strength and earnings visibility.
Looking beyond impairments
Investors appeared willing to look past a higher provision of £235m related to the UK motor finance scandal. This takes the total hit to £325m.
Regulators have warned that compensation to affected consumers could average around £700 each, but the market reaction suggests shareholders believe the issue is now largely contained.
Elsewhere, Barclays reported a £110m “single name” impairment in its investment bank — reportedly collapsed US auto lender Tricolor. However, this was overshadowed by upgraded guidance.
The lender now expects group net interest income of more than £12.6bn this year. That’s up from a prior forecast of £12.5bn, while its return on equity target was lifted above 11%.
Commenting on this, AJ Bell’s investment director Russ Mould noted that Barclays is “on track to record its best ever year for pre-tax income, barring some unforeseen disaster,” potentially surpassing the £8.4bn earned in 2021.
What the valuation tells us
Barclays trades on a forward price-to-earnings (P/E) ratio of 9.12 for 2025 and 7.4 for 2026. Forecast normalised earnings per share are 42.4p in 2025 and 52.3p in 2026.
That’s more expensive than it has been in recent years but cheaper than many of its international peers. Although, I’d suggest the FTSE 100 banks are typically trading in line with each other.
The dividend yields around 2.35% in 2025 and 2.61% in 2026, based on dividend payments per share of 9.08p and 10.1p.
Dividend cover remains conservative at 4.67 times in 2025 and 5.2 times in 2026. This suggests that payouts are comfortably covered and that the company may be preferring share buybacks as a way of rewarding shareholders.
The bottom line
Personally, I’m not sure there’s a huge amount to choose between FTSE 100 banks at this moment in time. Barclays may look better value on a P/E basis but the dividend is substantially less than other peers.
Investors seeking better value in the financial sector may need to look off the blue-chip index.
Nonetheless, I still believe Barclays shares are worth considering. Smaller banks may offer more potential, but at greater risk.
