Barclays starts Shawbrook at 'overweight', says it's 'unique' among UK financials

(Sharecast News) - Barclays started coverage of Shawbrook on Wednesday with an 'overweight' rating and 520p price target as it said it was unique among UK financials and the shares are attractively valued. It pointed to the fact that Shawbrook is a high-growth, high-profit specialist UK digital bank with a strong track record of delivering outsized returns (18-19%), regardless of interest rate and cyclical factors.

"Shawbrook works with complex clients who are typically underserved by traditional lenders, and deploys a specialist underwriting capability, underpinned by smart technology, to originate business at pace, with high risk-adjusted margins at a low marginal cost," Barclays said.

It noted that lending activities are split into four key sub-segments: commercial SME, commercial Real estate, retail mortgage brands, and retail consumer finance.

"Shawbrook aims to nearly double its size by 2030 ('30 by 30'), which we find highly achievable, and comes with a strong track record of supplementing its outlook through value-accretive M&A," Barclays said.

"Following a period of ownership by private equity, which saw significant investment in the business, we see the business as delivering strongly and at scale."

Barclays forecast a 17% to 19% return on tangible equity each year for 2025E-28E, consistent with management guidance of high teens.

The bank also said there was clear valuation upside. "At 6.7x 2027E price-to-earnings or 1.25x PTNAV for an 18-19% RoTE, we see attractive value in the shares," it said.

"Our price target of 520p values the bank at 8x 2027E PE, an undemanding level which reflects still-subdued valuations for broader UK financials. Indeed, if UK risk premium can continue to normalise, we see our upside case of 650p (equivalent to 10x 2027E PE) as achievable."

Barclays expects the shares to re-rate over time as the company confirms a strong outlook for earnings with results updates, with additional support from rate cuts and improving liquidity as free float likely increases over time.