If reports are to be believed, the Treasury’s drawing up plans to promote UK shares. Reminiscent of the ‘Tell Sid’ campaign — used for the privatisation of British Gas — it’s rumoured that the government wants to do something similar to boost investment in shares listed on the London Stock Exchange.
Specifically, it’s seeking to encourage those sitting on cash savings to take more of a risk and hopefully, generate a better return on their money.
Changing minds
But it could have its work cut out persuading people to make the switch.
A recent article in the Daily Mail identified nine FTSE stocks that investment advisors said “could soar” over the next few years. Underneath the story readers posted their comments.
One said the UK market was “pathetic” compared to the US and Singapore. Another was equally cynical saying: “Remember, what goes up must come down”. Others criticised the government for damaging the economy and, therefore, holding back the stock market. One correspondent said that cash was safer than shares although they neglected to mention how inflation erodes the value of money over time.
From a personal perspective, most of my investments are already in UK stocks. Therefore, I don’t need convincing of the merits of domestic equities.
I acknowledge that other markets could (if history’s anything to go by) generate better long-term gains. But I’m more familiar with UK companies and I feel comfortable investing in them.
Britain’s second-most valuable bank
Of the nine stocks on the newspaper’s list, my preferred one would be Barclays (LSE:BARC).
Before explaining why I like the bank, I’m going to acknowledge the risks of investing in the sector.
Banks can be a barometer for the wider economy. A general downturn could affect their earnings and increase the risk of loan defaults.
Margins could also come under pressure if, as expected, the Bank of England resumes cutting the base rate.
One area where Barclays lags behind most of its peers is with its dividend. The stock’s yield of 2.4% is currently (21 July) below the FTSE 100 average. But I’m sure the bank’s directors will point to their 2024 three-year pledge to return £10bn – through a combination of dividends and share buybacks – as evidence of their commitment to rewarding shareholders.
A positive outlook
Brokers have an average 12-month share price target of 382.5p (range: 323p-415p). None are advising their clients to sell.
Over the next three years, they’re forecasting earnings per share to increase significantly to 40.4p (2025), 50.5p (2026) and 58p (2027). If they’re right, the stock’s currently trading on an attractive forward multiple of 6.
Some of this growth’s expected to come from new business but a significant proportion is anticipated from a more efficient use of resources. It’s targeting a Return on Tangible Equity of 12% in 2026, compared to the 10.5% it achieved in 2024.
Analysts are predicting tangible net assets per share of 511p in 2026. If the bank’s share price could match this valuation, it could climb by nearly 50% over the next couple of years.
That’s why I own shares in Barclays and plan to hold on to them. For the same reasons, other investors could consider adding the stock to their own portfolios.
