I've thought for a long time that Barclays(LSE: BARC) is the UK's best-managed bank. Sure, it's a sector that's not exactly been a glowing success on that score over the past decade and that might sound like faint praise, but still.
The share price plummeted in the immediate aftermath of the EU referendum, but since those depths we've seen a 60% recovery to today's 212.5p -- and I reckon there's a lot further to go, and that it won't be too long before we see Barclays shares trading at above £3.
Forecasts see Barclays getting back to earnings growth this year after a rocky few years, for a forward P/E multiple of a modest 11. That would be fair for a one-off year, in which dividends are expected to return but only yield 1.5%, but the longer-term future makes me think it's too cheap.
Cracking start to the year
First, though, what about 2017? First-quarter results just out show pre-tax profit more than doubling from last year's Q1, to £1,682m, with EPS from continuing operations up from 2.2p to 6.1p. Tangible NAV per share perked up a little, from 290p in December to 292p, which alone is way ahead of the share price.
Chief executive James E Staley said that "We are now just two months away from completing the restructuring of Barclays as a Transatlantic Consumer, Corporate and Investment Bank", which should mark an important milestone.
Analysts are already predicting a further EPS boost for 2018, which would drop the P/E to under 9.5 and suggest a PEG of 0.5 (putting Barclays on a growth share valuation!) Dividends should be back to 3.8% by then, too.
Yes, I really do think we could see £3 before the year is out.
A new challenge
The malaise afflicting our big banks has thrown up a new kind of opportunity, too -- the so-called challenger banks that have sprung up to fill the gaps in the UK retail banking business.
Today I'm looking at the cryptically named CYBG(LSE: CYBG), which consists of what used to be Clydesdale Bank and Yorkshire Bank.
CYBG is expected to start turning in solid profits this year, and to pay its first dividend. It should only yield around 1%, though there's already a 2.5% yield pencilled in for 2018 -- and it would be three times covered and could well mark the start of a progressive run.
In fact, at full-year results time for 2016, the bank told us it aims to pay out 50% of earnings as dividends -- were it already doing so, the forecast 2018 yield would stand at 3.8%.
Judging by the bank's Q1 figures, 2017 is going just fine right now, with a mortgage book up 4.4% -- in a very competitive market and ahead of the wider average.
Deposit balances were up 4.7%, and new SME lending came in at £574m. With a CET1 figure of 12.8% at December, liquidity looks healthy, and full-year guidance was unchanged.
Looks like a buy to me
The shares have put on nearly 50% since flotation to today's 282p, though they've fallen back a little since November's peak at over £3, so does that provide a buying opportunity?
Looking at a P/E expected to drop to 13 by September 2018, and on my assessment of CYBG's long-term growth potential, I think it does and I see a long-term buy here -- but I do wish they'd change that name.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.