Barclays (LSE: BARC) has seen its share price fall 9% from its 1 August 12-month traded excessive of £2.41.

The transfer was pushed by that day’s 0.25% reduce in UK rates of interest to five% from their 16-year excessive. It was adopted on 19 September by the Financial institution of England Governor’s remark that he’s optimistic “interest rates are going to come down”.

Decrease charges are prone to end in a discount in Barclays’ internet curiosity margin over time. That is the distinction between curiosity acquired from loans and paid on deposits. It stays the important thing threat for the financial institution, for my part.

Nonetheless, I believe there are different components that give the UK ‘Big Four’ financial institution appreciable shopping for attraction.

Sturdy progress outlook from a brand new plan

One is a brand new three-year plan introduced in February designed to enhance Barclays’ operational efficiency. It additionally goals to drive increased returns, and predictable, engaging shareholder distributions.

Extra particularly, by end-2026, it targets revenue of round £30bn and a return on tangible fairness (ROTE) of 12%+. In contrast to return on fairness, ROTE excludes intangible components resembling goodwill.

The financial institution additionally goals to distribute over £10bn of capital to shareholders by way of buybacks and dividends.

A key ingredient in attaining these objectives is the simplification of the financial institution’s organisation into 5 fundamental divisions. On this vein, it lately confirmed the sale of its Italian mortgage and German client finance companies.

These modifications also needs to allow it to attain its goal of whole gross effectivity financial savings of round £2bn over the three years.

How’s it doing up to now?

H1 2024 outcomes mirrored the prices of this reorganisation, with whole working bills up 1% yr on yr to £8.2bn. Revenue was down 2% yr on yr at £13.3bn and ROTE was 2.1% decrease at 11.1%.

By way of shareholder rewards, it accomplished the £1bn buyback introduced with its 2023 outcomes. It additionally introduced an additional £750m buyback and elevated the interim dividend by 7% to 2.9p from 2.7p.

Any stalling within the implementation of this plan stays one other threat for the financial institution.

Nonetheless, because it stands, consensus analysts’ estimates are that its earnings will develop by 12.8% every year to end-2026.

Are the shares low-cost?

Progress in earnings in the end energy a agency’s share price and dividend increased. And Barclays already appears very undervalued – one other main constructive for me.

On the important thing price-to-book ratio (P/B) measure of inventory valuation, it trades at simply 0.5.

That is joint backside of its competitor banks (with Customary Chartered), which have a median P/B of 0.7. So, it appears low-cost on this foundation.

In exhausting money phrases, a reduced money stream analysis reveals the inventory to be 64% undervalued on the present price of £2.20.  

So a good worth for the shares could be £6.11. They could go decrease or increased than that, however it highlights how low-cost they appear proper now.

Will I purchase them?

I already personal two different banking shares (HSBC and NatWest), so shopping for one other would unbalance my portfolio.

If I didn’t have these, I believe Barclays could be a very good purchase for me, given its low valuation and powerful progress prospects.