Picture supply: Getty Photographs
A lump sum of £20,000 invested in FTSE 100 banking big Barclays (LSE: BARC) two years in the past can be value £48,571 right this moment, together with dividends. That may be a staggering 143% complete return over simply 24 months.
The surge has been pushed by a pointy rebound in profitability, aggressive price‑reducing, and a buyback programme. However regardless of this momentum, the shares nonetheless commerce on a comparatively modest valuation.
So, how a lot additional may this rally realistically run?
How are its fee-based companies doing?
Positive aspects in any agency’s share value and dividends are pushed by sustained earnings progress. In Barclays’ case, one key driver is powerful momentum in its price‑primarily based company and funding banking divisions.
Revenue from the previous jumped 18% 12 months on 12 months to £2.064bn in 2025, whereas that from the latter rose 7% to £13.055bn. It underlined the power of Barclays’ increased buying and selling volumes and bettering deal pipelines feeding via into earnings.
Additional momentum comes from ongoing stability‑sheet growth in excessive‑high quality lending. Group loans and advances elevated £15.5bn final 12 months to £430bn, pushed by mortgage progress, playing cards, and company lending.
What are the opposite main progress drivers?
Barclays can also be seeing sturdy progress in its UK internet curiosity revenue (NII). That is the distinction between cash made on the curiosity charged on loans and paid on deposits. NII soared 15% in 2025 to £7.653bn, enhanced by the mixing of Tesco Financial institution and better revenue from its ongoing structural hedge. It’s a lengthy‑dated curiosity‑charge portfolio that smooths earnings when charges transfer, and it continues to assist revenue at the same time as margins stabilise.
One threat right here is elevated competitors within the banking sector that might squeeze Barclays’ margins. One other is sustained elevated gilt yields, which may hold its funding prices excessive.
Nonetheless, administration upgraded its return on tangible fairness goal — a key profitability measure for banks — to above 14% by 2028 (from over 12%). And analysts forecast its earnings will develop by a sturdy annual common of 9% over the medium time period at minimal.
So the place ‘should’ the shares be buying and selling?
‘Fair value’ represents the true value of the underlying enterprise, whereas value is just regardless of the market pays at any second.
The important thing level right here is that asset costs are inclined to converge to their truthful worth over time. So understanding and quantifying the distinction between value and worth is essential for long-term buyers’ earnings.
In Barclays’ case, a reduced money movement evaluation — utilizing an 8.3% low cost charge — exhibits the shares are probably 54% undervalued at their present £4.42 value.
Some analysts’ DCF modelling is extra bullish than mine, others extra bearish — relying on the variables used. Nonetheless, primarily based on my DCF work, the truthful worth for the shares is round £9.61 — greater than double right this moment’s value.
In order that price-to-valuation hole suggests a probably terrific shopping for alternative to think about right this moment if these DCF assumptions show appropriate.
My funding view
Barclays’ upgraded profitability targets level to a enterprise with bettering returns and a clearer strategic path. With the shares nonetheless manner beneath DCF‑primarily based truthful worth, the present value‑to‑valuation hole presents buyers a probably enticing lengthy‑time period alternative to think about.
I have already got holdings in two banks — HSBC and NatWest — so proudly owning one other would unbalance my portfolio’s threat/reward stability. Nonetheless, different bargain-basement alternatives have caught my eye, with a number of additionally producing excessive dividend revenue as effectively.
