Investec upgrades Barclays to 'buy'

Investec upgraded Barclays to ‘buy’ from ‘hold’ and lifted the price target to 200p from 195p.

The brokerage said that it acknowledges the rationale for an element of near-term caution in the context of the likely impact of a fresh PPI charge and pension headwind in the third quarter.

However, given the likelihood of a substantial third quarter consensus beat on 27 October and a now material £/$ tailwind for earnings/tangible net asset value, the stock is a little too cheap trading on 0.6x 2016-18e tNAV.

Investec forecasts a further £500m PPI charge in Q3 which, along with pension headwinds, should preclude any capital build in the quarter.

However, it estimates pre-tax profit of £1.72bn, which is 33% ahead of company-compiled consensus.

“Clearly there is fresh encouragement for Investment Banking revenues in the context of strong FICC performance from JP Morgan, Citigroup and Bank of America (all not rated) – up 48%/35%/39% year-on-year respectively in Q3 2016,” the brokerage said.

At 0934 BST, the shares were up 1.4% to 176.45p.