Barclays' valuation buoyed by more robust profit outlook, says broker

RBC Capital Markets has raised its price target for Barclays PLC to 355p from 340p, maintaining an 'outperform' rating, based on a 5% increase in its 2026 profit forecast. This enhanced outlook is attributed to stronger income from Barclays UK and the Investment Bank, coupled with improved loan growth and net interest margins. RBC now anticipates Barclays will achieve an 11% return on tangible equity in 2025 and a robust 12.5% in 2026, surpassing the bank's own targets, alongside a projected 60% cost-to-income ratio. Barclays shares rose 0.7% following the news.

Analysis

RBC Capital Markets has raised its price target for Barclays PLC to 355p from 340p, reinforcing its 'outperform' rating ahead of the bank's second-quarter results. The upgrade is underpinned by a 5% increase in RBC's 2026 profit forecast, driven by a stronger outlook for both Barclays UK and the Investment Bank. Key fundamental drivers include improved loan growth, expanding net interest margins, and higher income from the bank's structural hedge, which is positioned to benefit from the interest rate environment. Despite a minor increase in loan loss provisions, the broker's overall profitability outlook is positive. RBC projects Barclays will achieve a return on tangible equity (RoTE) of 11% in 2025, meeting corporate guidance, and then accelerate to 12.5% in 2026, exceeding the bank's target. Furthermore, an anticipated cost-to-income ratio of around 60% suggests effective expense management, supporting the positive earnings trajectory. The market reacted favorably, with shares rising 0.7% to 346p, trading near the revised target.

Key Decisions for Investors

• Given RBC's upgraded forecasts and a price target suggesting further upside from the current 346p, investors may view the 'outperform' rating as a reinforcement of a bullish thesis on Barclays.
• Investors should monitor the upcoming Q2 results for confirmation of the key drivers cited by RBC, specifically net interest margin expansion, loan growth momentum, and the performance of the Investment Bank.
• While the outlook is positive, it is important to track loan loss provisions, as any significant increase beyond the modest levels anticipated could present a risk to the profitability forecast.
• Progress towards the forecasted 12.5% RoTE for 2026 and maintaining a cost-to-income ratio around 60% are critical long-term metrics to watch for validating the investment case.