Shares in global bank Barclays are expected to more than double in the next 12 months, according to Jefferies. Equity analysts at the investment bank expect Barclays shares to rise to £3.20 ($4.07) from £1.54 currently – or 107%. Shares of the London-based bank, which is also trading in the US, are currently trading at $7.93. Why is Jefferies bullish? Shares of the British bank have underperformed over the past few months and are undervalued at a discount to peers. The bank trades at around 0.4 times tangible book value, compared with an average of 0.9 times its peers. The discrepancy reportedly led the bank to hire consultancy BCG for a strategic review to address weakness in the share price. However, Jefferies suggested that large-scale buybacks might be an ideal solution to this problem. Analysts at the bank predict that Barclays is likely to buy back £2.2 billion worth of shares in 2024 and 2025, with buybacks worth £1.5 billion this year. This would radically reduce the number of outstanding shares and potentially increase the value of the remaining shares. Another aspect of the BARC-GB 1Y line driving this positive outlook is Barclays’ “structural hedging”, according to Jefferies. Simply put, it’s a way to manage the risk posed by changes in interest rates. According to Jefferies, the bank has set aside substantial funds (£260bn) as a hedge, some of which (£50bn) will mature in 2023 and can be reinvested at higher market rates. Analysts say the move is expected to generate an extra £1.5bn in revenue next year. “We estimate the bank should be able to generate profits of around £19bn between 2023 and 2025 and we believe more should be returned to shareholders to better address share price weakness rather than another strategic review ,” Jefferies analysts led by Joseph Dickerson said in a June 20 note to clients. Analysts believe the combination of buybacks and the additional income from such hedging could boost Barclays’ return on tangible equity, a measure of how well the bank uses shareholders’ investments to generate yield. increase, its share price may also rise, providing better returns for shareholders. “A good entry point” Analysts at RBC Capital Markets agreed. They see Barclays as the biggest beneficiary of the structural hedging tailwind. Analysis by RBC suggests that structural hedging could lift Barclays’ net interest income by 30% by 2025 from 2022 levels and by 55% by 2027. The market has yet to fully appreciate the potential benefits of this revenue stream, they added. “We think BARC’s current valuation is a good entry point,” RBC analysts led by Benjamin Toms said in a May 12 note to clients. The bank is trading at the bottom of its historical range, below the historical average.” Barclays, which trades under the ticker symbol BARC, is poised for a 49% gain over the next 12 months. “While the bank has performed slightly better than its peers in building TBVps, the valuation gap with the industry has widened,” the RCB analyst added. But what if the global economy hits a recession-like speed bump? Investec Securities strategist Roger Lee said fears of a UK recession cannot be ignored. Nearly 60% of Barclays’ group revenue comes from the country. However, such concerns affect banks globally, not just those in the UK. The recent underperformance by banks could be reversed if a recession is avoided. Despite the potential risks, Investec strategists still favor banks as a “value” trade, suggesting they have significant upside potential.