ii view: Barclays shifting focus to 2028 growth targets

Third-quarter results to 30 September

• Income up 3% £7.4 billion
• Pre-tax profit up 12% to £2.3 billion
• Capital cushion or CET1 ratio of 14.2%, down from 14.3% in late June
• Cost:Income ratio of 62%, up from 55% in late June
• New £500 million share buyback programme
• Return on Tangible Equity (ROTE) of 11.7%, down from 14.8% in late June

Guidance:

• Continues to expect full-year ROTE of over 12%
• Continues to target ROTE of over 14% by 2028
• Targeting a Cost:Income ratio in the low 50’s percentage region by 2028

Chief executive Mr Venkatakrishnan said:

“I am pleased with the ongoing momentum of Barclays' operational and financial performance, with RoTE of 11.7% in Q326 and 13.8% year-to-date.

“With one quarter to go before the end of our original three-year plan, we have either achieved or are on track to achieve all of our 2026 Group targets. We are confident in and committed to the 2028 targets that we laid out earlier in the year."

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ii round-up:

Barclays (LSE:BARC) conducts business in the three areas of personal and corporate banking, credit card lending, and global investment banking. It operates across five divisions.

Barclays UK, or retail banking serves around 20 million customers including those for Barclaycard. UK Corporate banking has a relationship with over a quarter of all UK companies.

Private Banking and Wealth Management (PBWM) assists UK and overseas customers, while its Investment Bank serves multinational corporations and institutions globally.

Finally, the US Consumer Bank serves around 20 million customers in what is the world’s largest credit card market.

For a round-up of these latest results announced on 22 October, please click here.

ii view:

Tracing its history back to 1690, Barclays today employs over 90,000 people. The Investment Bank, which is for the most part a US division, generated almost half of all revenue during the nine months to late September. Barclays UK accounted for a further 29%, Corporate banking 7%, PBWM 4% and the US consumer division the balance of 13%. Geographically, the UK dominates at just over half of revenue, with the US generating close to another third and the rest of the world making up the balance.

For investors, uncertainty regarding inflation and expected higher interest rates may be causing customers to reign in lending demand. A change made by the UK government now sees its levy charge on UK banks double from 3% to 6% from January 2027. A forecast share price-to-net asset value comfortably above the three-year average may suggest the shares are not obviously cheap, while diversified US rival JPMorgan Chase & Co (NYSE:JPM) and fintech Revoult are now looking to win UK retail bank customers.

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On the upside, growth and efficiency targets continue to be pursed, with those to late 2026 on track and further targets to 2028 now coming into focus. Revenue gains were made across all the group’s divisions during the nine months, with only the US consumer division suffering a 1% fall in Q3. Diversity of operations includes a significant investment banking business which neither UK rivals Lloyds Banking Group (LSE:LLOY) or NatWest Group (LSE:NWG) can offer, while shareholder returns include a dividend yield of around 3.5% as well as a new £500 million share buyback programme.  

On balance, and while risks clearly remain, a consensus analyst estimate of fair value above 550p per share is a reason for long-term investors to remain optimistic.   

Positives

• Business diversification
• Attractive dividend yield (not guaranteed)

Negatives

• Uncertain economic outlook
• Previous litigation and conduct issues

The average rating of stock market analysts:

Buy