Shares of global bank Barclays are forecast to more than double over the next 12 months, according to Jefferies. Equity analysts at the investment bank expect Barclays shares to rise to £3.20 ($4.07) – or 107% – from the current share price of £1.54 Older brother. Shares of the London-headquartered bank are also traded in the United States and are currently priced at $7.93. Why did Jefferies raise prices? Shares of the Bank of England have underperformed and have been undervalued relative to its peers over the past few months. The bank’s tangible book value, an indicator of what shareholders would receive if the bank were to liquidate, is around 0.4 times what its peers trade at an average of 0 ,9 times. The disparity has resulted in the bank reportedly hiring consulting firm BCG to conduct a strategic review to address weaknesses in the share price. However, Jefferies suggests that a large-scale acquisition could be the ideal solution to this problem. Bank analysts predict that Barclays is likely to buy back £2.2 billion worth of shares in 2024 and 2025, along with £1.5 billion this year. This will essentially reduce the number of shares outstanding, potentially increasing the value of the remaining shares. According to Jefferies, another aspect driving this positive outlook is Barclays’ “structural hedge”. Simply put, it is a method of managing the risk associated with changes in interest rates. According to Jefferies, the bank has set aside a substantial sum (£260bn) of hedging, some of which (£50bn) is due in 2023 and can be reinvested at interest. higher market yield. Analysts say the move is expected to generate an additional £1.5 billion in earnings next year. “We estimate the bank will be able to generate around £19 billion in profits between 2023-2025 and we believe more of this money will be returned to shareholders to better address the weak situation. on stock prices instead of looking at another strategy.” Jefferies analysts led by Joseph Dickerson said in a note to clients on June 20. Analysts believe the combination of acquisitions and additional earnings from this hedge could enhance Barclays return on tangible equity, a measure of how well a bank uses shareholder investments to generate income. As a bank’s earnings increase, its share price may also increase, providing better returns for shareholders. ‘A good entry point’ Analysts at RBC Capital Markets also share this view. They identified Barclays as the biggest beneficiary of the structural hedge headwind. RBC analysis shows that by 2025, structural hedges could boost Barclays net interest income by 30% from 2022 levels and 55% by 2027. They added that the market has yet to fully appreciate. potential benefits of this income stream. “We see BARC’s current valuation as a good entry point. The bank is trading at the bottom of its historic range and below the historical average,” RBC analysts led by Benjamin Toms The head said in a note to clients on May 12. RBC expects shares of Barclays, trading under the ticker BARC, to rise 49% over the next 12 months. The RCB analysts added: “The valuation gap has widened despite the bank performing slightly better than its peers in building TBVps.” But what if the global economy experiences a speed bump, such as a recession? According to Investec Securities strategist Roger Lee, fears of a recession in the UK cannot be ignored. Barclays accounts for nearly 60% of the group’s revenue from this country. However, this fear has affected banks globally, not just in the UK. If a recession is avoided, banks’ recent underperformance could be reversed. Despite the potential risks, Investec strategists still favor banks as a “value” trade, suggesting they offer significant upside potential.