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To contemplate whether or not the Barclays (LSE:BARC) share worth represents worth for cash, I believe it’s smart to make a comparability to different banks. Luckily, the London Inventory Alternate frequently publishes knowledge that makes this potential.
The numbers
Primarily based on its outcomes for the previous 12 months, Barclays has a price-to-earnings ratio of 8.2. Of the FTSE 100’s 5 banks, this places it joint third within the league desk of ‘cheapness’.
Turning to its stability sheet, it has a price-to-book ratio of 0.7, implying that the worth of its belongings (much less liabilities) is 30% decrease than its present (18 July) inventory market valuation. Right here, it does higher than all of its friends besides Normal Chartered.
Revenue buyers might have a look at the dividend yield to see what sort of return they may get. Though there are by no means any ensures in terms of payouts, Barclays yield is decrease than all the Footsie’s banks besides, as soon as once more, Normal Chartered.
So with such a combined image, the place does this depart us?
What now?
We might take into account the 12-month worth targets of brokers to see what they assume. After all, these are simply forecasts however their common of 382.5p implies that Barclays shares are at the moment undervalued by 10%.
Encouragingly, none are recommending their purchasers promote the inventory.
Of the FTSE 100’s banks, solely NatWest Group does higher with a near-17% undervaluation.
In reality, the brokers reckon Normal Chartered’s shares are overpriced by 9%, HSBC’s pretty valued and that Lloyds Banking Group’s current market cap is 5% decrease than its true price.
Seeing the wooden for the bushes
Given this confused backdrop, I believe it’s time to take a extra subjective view somewhat than rely totally on numbers.
In my view, there’s all the time going to be a necessity for banks. All the new ones on the scene are comparatively small and none of them are near threatening the dominance of the UK’s ‘Massive 5’.
However that doesn’t imply the trade doesn’t face its challenges. There have been loads of banking crises through the years with some notable collapses. Many have needed to shore up their stability sheets to make sure they proceed to fulfill their regulatory necessities.
And earnings within the sector will be risky. Dangerous loans are a specific downside throughout financial downturns.
However I believe the UK banking trade — and Barclays specifically — is in fine condition.
The Financial institution of England’s newest Monetary Stability Report says the sector’s “nicely capitalised, maintains strong liquidity and funding positions, and asset high quality stays robust.”
As for Barclays, its Q1 2025 outcomes confirmed a 26% enhance in earnings per share in comparison with a yr earlier. It plans to extend its return on tangible fairness to over 12% by the top of 2026. In 2024, it was 10.5%. With fairness of over £50bn, an enchancment of 1.5 proportion factors could have a big impact.
Admittedly, it’s not sure this shall be achieved. However with an skilled boss, robust model and strong stability sheet, I believe it might meet this goal. I due to this fact plan to carry on to my shares. And different buyers might take into account including the inventory to their very own portfolios.
