Barclays PLC (LSE:BARC) may not be top of mind for many investors, but RBC Capital Markets argues that it is one of the more overlooked value opportunities in the UK banking sector.
In a note reaffirming its outperform rating and 340 pence price target, RBC says the bank is trading at an unjustifiably low valuation given its improving returns, resilient balance sheet and scope for higher shareholder distributions.
At around 307 pence, Barclays shares trade at just 0.6 times tangible book value. RBC believes that the discount is too steep for a bank expected to generate returns on tangible equity of 12.4% in 2026 and 12.6% in 2027.
Re-rating in view?
These are levels that match the bank’s medium-term targets, and if achieved, should support a re-rating of the stock. The analysts forecast a total return of 12% for shareholders, factoring in dividends and ongoing buybacks.
The investment case is underpinned by better-than-expected momentum in the UK retail bank. RBC sees upside to net interest income, helped by steady loan growth and an improving net interest margin.
It now expects UK net interest income to rise from £7.6 billion in 2025 to £8.4 billion by 2027. Structural hedge income, which Barclays earns by investing deposits in longer-term assets, is forecast to increase from £5.9 billion in 2025 to £6.3 billion in 2027.
Outside retail banking, the corporate and investment bank remains a core strength, though more volatile.
Disciplined approach
RBC notes that Barclays is keeping a disciplined approach to capital allocation, trimming risk-weighted assets and focusing on more predictable fee income.
Barclays has already committed to returning at least £10 billion to shareholders between 2024 and 2026. With capital levels strong and costs under control, RBC expects the bank to deliver on this and potentially more if profitability remains on track.
In its view, the current valuation does not reflect the bank’s improving financial profile or the scale of cash returns ahead. For long-term investors, it sees Barclays as a mispriced name with meaningful upside if execution continues to deliver.