Broker snap: De-risked Barclays now cheap

30th Jun 2009 11:00

Following hot on the heels of Goldman Sachs's broadly optimistic review of the UK banking sector yesterday, Deutsche Bank has cast a favourable eye on British banking giant Barclays."The rally in Barclays' stock is significant and right, in our view, considering the equity market's revised view of the bank's capital adequacy given an improving environment, proceeds of the BGI sale and confirmation that management have succeeded in significantly shrinking risk-weighted assets in 2009," the German bank said.Deutsche sees further opportunity for share price growth driven by earnings."We expect adjusted earnings of 27p in 2009, rising to 39p in 2010, 49p in 2011 and 72p in 2012 as net interest margins, loan impairments and risk asset drags recede. The stock is inexpensive on this basis, in our view," Deutsche believes. The bank has upped its price target for Barclays from 220p to 365p."We expect the equity market will increasingly look at Barclays' underlying earnings power - excluding risk inventory charges - now that capital adequacy is less an issue. On this measure, the stock is even cheaper on around 5 times earnings despite loan losses befitting a serious recession and margin loss which goes with near-zero official rates," Deutsche concludes.