Image source: Getty Images
The Barclays (LSE: BARC) share price is a work of wonder. It’s up 200% over five years and 80% in the last 12 months. Right now it seems unstoppable, jumping another 7% in the week after the Budget spared the big FTSE 100 banks a new windfall tax on profits. How long can the excitement last?
Given the mighty rally investors might expect Barclays shares to be overpriced, but the price-to-earnings ratio is a modest 11.9, comfortably below today’s FTSE 100 average of around 17. True, it was only at six or seven just a couple of years ago, but it’s still pretty cheap.
Soaring FTSE 100 sector
The price-to-book sits at roughly 0.78. I remember the days when it was 0.4, but it still doesn’t look over valued. Investors who’ve missed out on the stellar Barclays rally may still have a buying opportunity. Should they take it?
Barclays clung onto its investment banking arm during the financial crisis, giving it exposure to US markets that rivals don’t have. That adds a bit of bite in the good times, but adds a layer of risk in trickier times. The board looks ready to snap up other opportunities Stateside, recently agreeing to buy US consumer-loan platform Best Egg for $800m. Nice to see it on the acquisition trail after years of post-financial crisis retrenchment.
On 22 October, Barclays posted a 7% fall in Q3 profit to £2bn, mostly due to a higher £235m provision relating to the motor finance scandal, taking the total impairment to £325m. Yet even here it got lucky, with far less exposure than rival Lloyds Banking Group.
The underlying growth story looks intact, with Barclays on track to record its best ever year in 2025, with pre-tax likely to beat the £8.4bn it made in 2021, according to AJ Bell. Barclays also surprised and delighted investors with a $500m share buyback.
Its trailing dividend yield is disappointing at 1.93%, that’s down to two factors. First, the shares have done so well, driving the yield down. Second, the board prefers to reward investors primarily through buybacks. In total, it plans to return at least £10bn of capital to shareholders between 2024 and 2026, which is pretty generous.
Big banks are all doing well
There are risks. The UK economy is struggling while the US skirts recession. Slower global growth generally could knock its investment banking and corporate divisions.
Also, the big banks have done well across the board lately, boosted by higher inflation and interest rates. This has increased their net interest income, which measures the difference between what they pay savers and charges borrowers. At Barclays, this is forecast to hit £12.6bn this year.
However, the US Federal Reserve and Bank of England are both expected to cut interest rates in December, and several more times next year, and that could squeeze margins and profits. Yet I still think Barclays shares could continue their climb, albeit at a slower pace, and are worth considering today.
