Goldman Sachs Initiates Coverage on Barclays plc

Goldman Sachs has begun coverage on Barclays plc (LON:BARC) with a "buy" rating, signaling a critical shift as the bank prioritizes higher-return businesses.

Growth Forecast

Analysts project robust growth for Barclays, with expected earnings-per-share increases nearly double the sector average over the next several years.

Current Performance

Barclays' share price has risen over 40% year-to-date, yet it still trades at a discount compared to its historical performance and the broader European banking sector.

Price Target

Goldman Sachs has set a price target of 290 pence for Barclays, indicating a potential 27% upside from current levels.

Strategic Focus

The positive outlook stems from Barclays’ strategy to redeploy capital in its UK business and reallocate resources within its Investment Bank. The bank plans to shift approximately £30 billion of risk-weighted assets into its UK franchise, aiming to enhance profitability through higher-yielding ventures, such as its US credit card business and a structural hedge that mitigates declining rates' impacts on net interest income.

Analysts foresee a return on tangible equity (ROTE) exceeding 11% from 2024 to 2026.

Investment Bank Adjustments

While Barclays’ investment bank is crucial, it faces intense scrutiny over capital allocation. Goldman Sachs indicated that Barclays intends to navigate its Investment Bank towards more capital-light sectors like M&A and equity capital markets to bolster profitability. Despite expected earnings growth from these areas, high operational costs will still challenge the investment bank.

However, analysts predict that Barclays may fall short of its 12% ROTE target for the division, settling on a more cautious 10.9%.

Potential Risks

This rebalancing act carries risks. Analysts from Goldman Sachs have flagged potential challenges, particularly regarding Barclays’ US consumer banking performance and the overall UK banking landscape. The upcoming UK government budget could introduce tax policy changes impacting the bank’s financial outlook.

Nevertheless, Barclays’ diversified global portfolio, boosted by its presence in the US, is seen as a safeguard against localized difficulties.