A 45% upside for Barclays (LSE:BARC) shares has been forecast after a “deep dive” by a City firm examined the levers management might pull to boost profitability.
Morgan Stanley’s “overweight” stance and much improved 230p estimate today helped to power Barclays to the top of the FTSE 100 index with a jump of 4.8p to 158.5p.
The stock has been stuck in a narrow range between 140p and 165p for most of this year, trading on a multiple of less than five times forward earnings. The tangible book value is 0.4 times 2025 earnings, which compares with Lloyds Banking Group (LSE:LLOY) and UK peers on around 0.8 times.
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Against this backdrop, Barclays management recently hired Boston Consulting Group to carry out a review of its strategic options in time for next February’s annual results.
Morgan Stanley does not anticipate a large-scale restructuring plan, with the findings likely to focus on growth opportunities in US credit cards and in wealth management. It is also set to target improved capital efficiency in order to maximise shareholder distributions.
Today’s analysis flags the potential for share buybacks to rise from a previous forecast of £1 billion a year to £1.5 billion, equivalent to a total yield of 12%. The upside case is £2 billion or 14.5% in the event of disposals and other capital efficiencies.
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Today’s 21% increase in share price target from 190p to 230p - a price not seen since March 2017 - is underpinned by the City firm’s much higher profit estimates, which have risen by 12% for next year and 20% for 2025.
The optimism reflects a 3-5% projected increase in revenues in Corporate and Investment Banking (CIB) and a 6-9% upside scenario in the Consumer, Cards and Payments (CCP) division as Barclays’ US credit card business gains scale.
Morgan Stanley said: “We think consensus underestimates the revenues in CC&P, which, together with an improved outlook in the CIB, leaves us ahead of consensus for the first time.”
About 60-70% of Barclays revenues are from the investment bank, but with management looking to diversify by growing other businesses including US cards and private banking.
Banking fees remain depressed across the industry, but Morgan Stanely notes that they are starting to pick up. Other factors boosting the outlook include the likely end of interest rates rises, which should improve the investment banking deal pipeline.
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