Barclays’ share price is nearing a nine-year high after positive third-quarter results. What is the prediction for the future?

The Barclays (LSE: BARC) The share price rose today (24 October) after the bank reported strong third quarter results, which beat market expectations. The price rose 4.2% in morning trading to rise above the 246p level – the highest level since October 29, 2015.

Pre-tax profits for the July to September period came to £2.2 billion, up 18% from £1.9 billion in the third quarter of last year. This exceeded the consensus of the bank’s own analysts, who expected pre-tax profits of ‘just’ £2 billion.

Growth was driven by higher revenues and better cost management. The investment arm in particular led the way with 6% year-on-year growth to £2.9 billion.

Net profit was £1.6 billion, an increase of 23% on the same period last year.

Total revenues rose 5% to £6.55 billion, with net interest income (NII) for the quarter reaching £2.8 billion. The bank also raised its full-year 2024 outlook for the NII to over £11 billion, reflecting optimism about its core banking business.

In the report, it reaffirmed its target of a return on tangible equity (RoTE) of more than 10% in the near term, with a target of more than 12% by 2026. Furthermore, it plans to increase at least £10 between 2024 and 2026 billion to return to shareholders. through dividends and share buybacks, with priority given to the latter.

Looking ahead

Overall, it’s a positive result that could see the price rise even further this year. It’s already up 82% since last year’s Q3 results and shows no signs of slowing down.

But no strong performance can protect the country from economic and market risks. Changes in interest rates and inflation, plus economic slowdowns, could hurt the bank’s profitability. Another concern is currency risk, as Barclays generates a significant portion of its revenue outside Britain. Currency fluctuations, especially between the pound and the US dollar or euro, can affect earnings when converted back into the local currency.

But for potential investors, the main concerns are usually the stock price and dividend forecast. What kind of returns can I expect from my Barclays shares in the future?

Valuation and forecast

Barclays’ price-to-earnings (P/E) ratio has more than doubled in the past year, from 3.6 in October 2023 to 8.7 today. It is now above the European banking sector average of 7.7 and above Lloyds, HSBC And NatWest. That’s not unusual with a rapidly rising price, but it could limit growth potential.

Fortunately, now that earnings expectations will improve, the future price-earnings ratio is more attractive: 6.7.

Looking at analyst forecasts, I see an average 12-month target of €2.73, up 14.5% from today. That’s not much to be excited about, considering it’s only slightly above the average return of my index funds.

Fortunately, the dividend forecasts are a little more promising.

The current interest rate of 3.4% is expected to continue rising and is expected to reach 4.2% by the end of 2026. This would make the interest rate well above the sector average. Assuming these estimates hold up (which they may not), I could expect an 18% to 22% return on my stock over the next few years.