Broker snap: Goldman removes Barclays from 'buy' list

20th Feb 2013 09:16

After a strong performance over the last few months, Barclays has now been removed from Goldman Sachs' Pan-European 'buy' list and is now rated 'neutral' by the US investment banks.Since being added to the 'buy' list back on November 16th 2012, shares in the UK banking group have jumped a whopping 38.8%. This compares with the FTSE World Europe index which has risen 18.8% and other UK banks under Goldman's coverage which are up a still-impressive 24.4%.The broker said that following Barclay's strategic review announced earlier this month, the risk/reward in the shares is now "broadly balanced".Goldman said that the group's financial targets for 2015 - delivering a return on equity (RoE) in excess of the cost of equity (CoE) of 11.5% - rely more on efficiency gains and less on divestments of low-return operations than it would have assumed."The magnitude of Barclays' projected operational improvement - updated net income and RoE targets represent an upgrade of previous targets on a like-for-like basis - exposes the group to significant execution risk," Goldman said."Moreover, the plan will have only limited impact on Barclays' business mix, leaving the group with the lowest medium-term RoE target among the UK banks as well as steady-state RoE less than CoE (assuming targets are met but group credit costs revert to the long-term average and ICB reform costs settle at the middle of the HMT range)."Goldman said that its new target price of 340p (350p previously) implies just 5.0% potential upside."We consider it unlikely that the announced strategy re-sets market expectations of Barclays' cost of capital or growth profile. Consequently, we expect any re-rating of the stock from here to be gradual - tracking improvement in reported returns - rather than front-loaded."Shares were down 1.2% at 321.1p by 09:53 on Wednesday.BC