Barclays Sets Ambitious 2-Year Targets, Banking on Capital Markets Recovery

Barclays (NYSE:BCS) recently announced some stiff targets it has set for itself over the next two years. ^[1] The London-based global bank is looking to expand its top-line by between £4.3 billion and £6.4 billion ($7 billion and $10 billion) by the end of 2013. These targets have been described as ambitious by market analysts, with the company’s largely Europe-centric operations taking a hit in recent quarters – and the situation in the region not expected to improve in the near future. But the company seems to have a blue-print of its plans ready. Barclays, U.K.’s second largest bank, competes with other worldwide banking institutions and financial services group like Citigroup (NYSE:C), RBS Group (NYSE:RBS), Bank of America (NYSE:BAC), UBS (NYSE:UBS) and JPMorgan Chase (NYSE:JPM).

Our $18.30 price estimate for Barclays stock is at a premium of roughly a 10% to the market price.

The company expects maximum growth from the Barclays Capital business

Barclays believes that of the estimated additional revenues it expects to rope in by 2013, almost 40% would be attributable to the Barclays Capital. This represents £2.4 billion ($3.9 billion) of additional revenues from this business division.

We believe that this growth will largely be driven by an increase in the debt capital deployed by Barclays Capital – with revenue numbers helped by yields of more than 6% that the division has achieved on its debt-based securities over the last 2 years.

The company also believes that its retail and business banking will bring in an additional £2 billion ($3.2 billion) while the corporate banking and wealth management units could add as much as £1 billion ($1.6 billion) each.

Costs are also expected to be cut significantly

The biggest cut on the cards is to reduce its operations in Spain by as much as 20% by eliminating as many as 700 jobs. This will help margins for it consumer banking business with the bank also clearly trying to reduce its dependence on debt-ridden Spain.

At the corporate level, Barclays expects to cut down costs by as much as £1 billion ($1.6 billion) by 2013 to achieve an operating expense target of £16.8 billion ($27.2 billion).

If the company indeed manages these revenue and cost-reduction targets, the upside potential is quite evident.

See our full analysis for Barclays

1. Barclays Targets as Much as $10.4 Billion Extra Revenue by 2013, Bloomberg, Jun 15 2011 [↩]