Barclays PLC (LSE:BARC) delivered a solid set of first-quarter numbers on Wednesday, but you wouldn’t know it from the market’s reaction.
The shares have drifted rather than surged, yet UBS believes investors are missing the bigger picture.
This is a bank quietly getting things right. Profits ahead of forecast, led by investment banking
Underlying profit before tax came in 8% above consensus, driven by income that was 4% stronger than expected. Operating costs were slightly higher, but not enough to spoil the view.
Barclays delivered a 9% beat on pre-provision profit, helped by a strong performance from its investment bank.
UBS noted that most of the outperformance came from the investment banking division, UK corporate lending and US consumer operations. UK retail and private banking were in line, while the head office made a small loss.
Higher impairments, but for the right reasons
Loan loss provisions were £96 million higher than analysts expected. But £74 million of that was down to a model-based adjustment to account for macroeconomic uncertainty.
In plain language, Barclays is being cautious about the outlook, not responding to a spike in actual defaults. That’s a positive sign.
NII guidance improves, but no fireworks just yet
The bank lifted its guidance for net interest income, particularly in its core UK business. Barclays UK now expects to deliver over £7.6 billion of NII this year, up from a previous forecast of £7.4 billion.
Guidance for the wider group, excluding the investment bank and head office, rose to more than £12.5 billion.
But UBS thinks most of this was already baked into analyst estimates, so big upgrades to consensus numbers may not follow immediately.
Still, the direction of travel is encouraging.
Capital strength opens the door for higher returns
Barclays ended the quarter with a common equity tier 1 ratio, a key measure of capital strength, of 13.9%. That’s at the top of the bank’s target range and 30 basis points above consensus.
UBS argues this sets the stage for stronger capital returns. Management has pledged at least £10 billion of payouts between now and the end of 2026.
Valuation too cheap to ignore?
UBS values Barclays at 5.8 times expected 2026 earnings and just 0.7 times its tangible net asset value. That’s based on a forecast return on tangible equity of 12.3%.
Its price target is 365p, up from 360p, implying 24% upside from current levels. Even if Barclays only hits the lower end of its targets, the valuation looks undemanding.
If it exceeds them, UBS sees potential upside of 18% to its own forecasts.
The takeaway for investors
There’s no big splash here. No bumper dividend or dramatic earnings surprise.
Just a well-executed quarter with better-than-expected income, cautious provisioning and improving capital strength.
That might not be enough to excite the market in the short term.
But for longer-term investors, UBS thinks Barclays is too cheap to ignore. Its verdict? Buy.