Out of all the UK banks Barclays PLC (LSE:BARC) has the greatest scope to re-rate, that’s according to analysts at Jefferies.
The broker picks out Barclays among six new names in its ‘high conviction ideas’ list across its coverage of more than 650 European equities.
Focussing on Barclays analysts see potential for capital returns equating to some 35% of the bank’s current market cap.
A ‘buy’ recommendation comes with a 300p price target, versus a current market price of around 185p.
“We believe this is a bank that should be trading on 1.0x TBV, not 0.6x TBV given the potential to achieve rates of return on tangible equity in excess of 10% as well as dividend and buybacks equivalent to c35% of the current market cap,” Jefferies analyst Joseph Dickerson said in a note.
Risk / reward favours those going long Barclays, the analyst highlighted. “While the 72% upside to our 300p price target is attractive, the bull case upside is 130% against the bear case downside of 28%,” he said.
“Recent second quarter 2021 earnings (45% ahead of consensus) and £500mln share buyback (which did not factor into market thinking) embolden our conviction further.”
In July, Barclays resumed dividend payments and announced a £500mln share buyback as interim profits soared almost four-fold to £5bn.
A reduction in bad debt charges due to the better economic outlook globally sparked the improvement, with a £4.5bn swing this time compared to a year ago with a £0.7bn credit against a £3.8bn charge.
This offset a drop in income overall of 3% to £11.3bn in the six months to end June 2021, due to currency effects, weaker credit card spending and a reduced contribution from corporate and merchant banking.