Barclays(LSE: BARC) is one of the markets most misunderstood companies. On the face of it, the bank is struggling to turn around its failing investment banking division, and legacy issues are costing the bank billions to wind up.
However, if you look past these short-term issues, Barclays underlying business is powering ahead.Then theres Barclays secret weapon to consider: Barclaycard.
World leading
Barclaycard is one of the worlds top ten credit card issuers. The business handles around half of the credit card payments within the UK and South Africa and is the number one credit card issuer in Africa and Europe.
And Barclaycard is growing rapidly. The company has added over seven and a half million customers in the past few years, and unit profit jumped 15% during 2014 to just under 1bn.
Based on this figure, if Barclaycard was valued as an independent entity it could be worth around 14bn. This valuation is based on the fact that Barclaycards close peerAmerican Expressis trading at an earnings multiple of 14 times forward earnings.
Underlying growth
Barclaycard is not the only part of Barclays thats growing rapidly. In particular, Barclays personal and corporate banking arm reported a 29% jump in adjusted pre-tax profits for 2014. Whats more, the divisions return on equity a key measure of banking profitability hit 12% during 2014. This is almost double the average return on equity reported by Europes largest banks for 2013.
Its clear that Barclays underlying business divisions are charging ahead and for that reason, the best way to try and put a value on Barclays is to use asum-of-the parts valuation. For example, as noted above the Barclaycard business should be worth in the region of 14bn by itself, if it was spun off from the Barclays group.
Additionally, the personal and corporate banking side of Barclays banking business, which produced profits of 2.1bn during 2014, could be worth around 25bn based on a multiple of 12 times 2014 earnings.
All in all then, the Barclaycard and Barclays personal businesses are worth in the region of 40bn alone. At present, Barclays market cap stands at 42.7bn.
But these numbers exclude Barclays African business and the groups investment bank. These two units generated a profit of 775m during 2014. An undemanding multiple of 12 times earnings for these two businesses gives a valuation of 9.3bn.
Foolish summary
So overall, adding together all the parts of Barclays business gives a total value of 49.3bn, a full 15.5% above the banks current market cap.
Still, as always, I strongly recommend that you do your own research before making any trading decision — you may come to a different conclusion.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.