'Buy' Barclays after Q3 profit beat, recommends Shore Capital

Shore Capital has retained its 'buy' rating on shares of Barclays after the UK bank reported third-quarter profits well ahead of the broker's forecasts.Shore analyst Gary Greenwood said that the stock's "depressed valuation" - trading at just 0.77 times tangible net asset value of 287p - "more than compensates investors for the inherent risks in the business".Barclays said that adjusted pre-tax profits jumped 29% year-on-year to £1,922m in the third quarter ended September, 13% ahead of Shore's £1,699m estimate."At a group level, the 'beat' was mainly due to better than anticipated performance on impairments (with management slightly improving its full year guidance in this respect), but there was also slightly better than anticipated performance on revenue and costs," Greenwood said.However, he said the bank's capital position, the leverage ratio in particular, is a "key area of concern" ahead of the Prudential Regulation Authority's (PRA) upcoming stress tests.Barclays' leverage ratio increased to 3.5% from 3.4% in June, but the PRA is expected to announce a requirement for banks to operate with a 4-5% leverage ratio.Nevertheless, Greenwood said: "Overall, we feel this is a fairly good set of results versus expectations with adjusted profits coming in well ahead of expectations, which may put some upward pressure on full-year consensus earnings estimates (perhaps low to mid single digit percentage upgrade required)."Although capital remains a worry, we believe that this position can still be addressed without recourse to further equity issuance, noting the good progress the company is making in running off its non-core assets."Barclays' shares were up 0.5% at 221.5p by 09:46.