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2025 is off to a robust begin for UK traders. The FTSE 100 index is sitting simply shy of a brand new all-time excessive, beating the document set final Might.
At face worth, that is puzzling. Many consultants are forecasting sluggish development for the UK economic system and borrowing prices are at a 10-year excessive. Authorities spending is underneath the microscope with issues it’ll hold inflation greater for longer.
Nevertheless, the weaker British foreign money advantages multinationals that earn a lot of their cash within the US, and traders proceed to pile cash into equities. This has helped hold UK shares buoyant regardless of the overall doom and gloom.
Amid this turbulent begin to the 12 months, the UK large-cap index has climbed 5.4% prior to now month to eight,542 factors as I write on Thursday (23 January). And among the many many excessive performers, there’s one FTSE 100 banking inventory that has actually caught my eye.
Sturdy begin to the 12 months
The Barclays (LSE: BARC) share worth has gone from energy to energy in latest occasions. It has greater than doubled prior to now 12 months to £2.94 per share as of at present. That is severely spectacular development in a brief area of time and it has propelled the corporate’s market cap to over £40bn.
Chief government CS Venkatakrishnan has confirmed standard with traders since taking the reins in late 2021, with a promise to return £10bn to shareholders by way of share buybacks and dividends over the subsequent three years.
An 18% enhance in third-quarter 2024 pre-tax income to £2.2bn exceeded analysts expectations with sturdy funding banking efficiency offering a lift. All of that as Venkatakrishnan goals to ship on his promise to scale back the relative measurement of the extra risky buying and selling and funding banking division.
Greater borrowing prices might additionally doubtlessly assist the financial institution because it seems to spice up its web curiosity earnings(NII). That is basically the distinction between the financial institution’s curiosity earned on belongings and curiosity paid to prospects. Resilience in financial institution mortgage books alongside greater rates of interest has helped enhance Barclays and different financial institution’s valuations in 2025.
Valuation
So, it’s clear that the Barclays share worth has been on a run these days. How does that evaluate to its UK banking friends?
The NatWest share worth has climbed 95.7% within the final 12 months to £4.18, whereas HSBC shares are up 37% to £8.22 over the identical interval.
That leads me to relative worth. Barclays seems good worth at first look with a price-to-book (P/B) ratio of 0.6. That compares favourably to each NatWest and HSBC at 0.9 and 1.0, respectively.
Nevertheless, P/B ratios aren’t the one metric to contemplate. The financial institution’s 2% dividend yield lags behind NatWest’s determine of two.9%, whereas a price-to-earnings (P/E) ratio of 11.8 is nicely above the 8.7 that each NatWest and HSBC are buying and selling at proper now.
Will I contemplate shopping for?
Barclays isn’t a inventory that I’m trying to purchase proper now. The financial institution’s relative worth to friends is combined and there’s a strategic transformation underneath option to flip round its profitability.
There’s little doubt the latest share worth run has been spectacular however I’m undecided it’ll proceed. I’ll be focusing my consideration on extra defensive sectors throughout the Footsie, like prescription drugs, in the intervening time.
