Sitting at 149p, Barclays (LSE: BARC) shares are hard for me to resist. I can’t find a single FTSE analyst who rates the shares as a ‘sell’, and higher-end forecasts of 320p would give today’s investor a 115% return. Even if the top estimates for the FTSE 100 giant are over-eager and we look at an average, we see a target price of 238p.
We all know analysts have been wrong before — and will be again — which is why we need to dig deeper.
Barclays pays a solid dividend. This year it’s 7.25p (5%), and the stringent capital requirements from the regulator mean Barclays — along with other UK banks — is in a conservative position regarding cash reserves.
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So what’s been pushing the share price down?
Two sets of issues have been weighing on the share price. Poor sentiment towards the banking sector in general, and negative commentary on Barclays in particular.
Negative is understating the issue. Barclays has had some absolutely terrible press this year.
In the last few days, there’s been speculation that hundreds of jobs are due to be cut soon as part of an effort to trim costs. This comes hot on the heels of a slating from climate-change campaigners targeting the bank due to its support of carbon-heavy industries. The AGM was disrupted in May, and in July celebrities including Emma Thompson complained the bank was profiting from “climate chaos” and shouldn’t be allowed to sponsor Wimbledon.
Just last month it hit the headlines again, as supporters of the National Trust petitioned the charity to stop banking with Barclays.
Unsurprisingly this commentary has been a turn-off for investors.
But the bank isn’t taking this lying down. Barclays has made a significant number of sustainability hires and is on the hunt for a director to champion its climate efforts.
It is promoting the fact it’s provided £99bn in green financing since 2018, and doubled down on its commitment to hit net zero by 2050.
So what are the issues facing the financial sector as a whole?
UK banking stocks have been creeping downward for years. Government regulation meant holding more capital and tighter scrutiny, loss of income through the closure of investment banking units, and increased competition from fintech banks have plagued the sector.
Again there’s reason for optimism now.
The regulatory changes have been made and the cash reserves accounted for in the balance sheets. More importantly, interest rates have risen – a move that has historically been good for banks, as they can widen the margin between the rates offered to savers and to those charged on money loaned to customers.
Rates could even rise further if inflation warnings prove correct. In fact, a Monetary Policy Committee member due to vote on a further rate rise later this month has already signalled her support for a ‘higher for longer’ position.
All in all, I believe a corner has been turned for banks in general but Barclays in particular.
This is why I’m looking to add what I believe is the FTSE 100’s best bargain to my portfolio.
