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Is asking Barclays (LSE: BARC) shares sensational going too far? Investing is a critical enterprise. Greatest to keep away from tabloid hyperbole. But the outline suits. The shares are up 83% over the previous yr and an eye-popping 215% over two years.
If Barclays was a whizzy penny inventory, development buyers could be falling over themselves to seize a few of that momentum. But it surely isn’t. It’s a mighty UK blue-chip with a market capitalisation of £67bn. Frequent sense suggests the Barclays share worth should prime out ultimately. So how lengthy can it preserve this up?
FTSE 100 development star
On one key measure it appears like there’s nonetheless room to run. The value-to-earnings ratio stands at simply 14.5, which is beneath the FTSE 100 common of round 21. It additionally appears affordable worth on a price-to-book (P/B) foundation too, at round 0.89. That’s beneath the determine of 1 usually seen as truthful worth. That stated, the P/B’s at a 10-year excessive for Barclays.
So I don’t assume it’s raced too far forward of itself and turn out to be untouchably costly. I’m all the time on purple alert for these.
Barclays nonetheless has baggage of momentum, the shares climbing 26.62% over the past three months. A £10,000 funding would have grown to £12,662 in that point.
There’s been no dividend throughout that interval, with the final paid on 16 September. Barclays goes ex-dividend on 26 February, so there’s nonetheless time for buyers to catch the subsequent one. Ought to they go for it?
Barclays nonetheless has a considerable US funding banking and markets enterprise, which it stubbornly clung on to via the monetary disaster. This spans M&A advisory, company finance, buying and selling, brokerage and private finance. That footprint’s rising. In October, Barclays agreed to purchase US private mortgage platform Greatest Egg for $800m.
The flipside is harder regulation. US banking and securities oversight is famously strict, notably for international banks. Large fines are all the time a threat.
Buybacks or dividends: your alternative?
Barclays is increasing elsewhere too, securing an funding banking licence in Saudi Arabia as a part of its Center East enlargement. This worldwide attain provides it extra development potential than a largely UK-focused operator like Lloyds Banking Group. It additionally ups the dangers.
The dividend yield’s modest at 1.73%. The board prefers to reward shareholders via share buybacks as a substitute. Buyers obtained a shock $500m buyback within the autumn, a part of plans to return not less than £10bn of capital between 2024 and 2026. Earnings seekers might choose HSBC, Lloyds or NatWest as a substitute, which all prioritise dividends.
Can Barclays preserve delivering? It did put up a 7% drop in third-quarter earnings to £2bn, largely as a result of motor finance impairments. Even so, it stays on observe for its best-ever yr for revenues.
Accidents can occur. In a wider financial downturn, Barclays could be on the entrance line, with rising defaults a threat. Falling rates of interest might squeeze internet curiosity margins and dent profitability. Dealer forecasts are hardly inspiring. The consensus one-year worth goal of 484p is roughly the place the shares commerce right this moment.
I nonetheless assume Barclays shares are effectively price contemplating.They could be rather less sensational going ahead, however might nonetheless be a massively rewarding long-term funding.
