Will 2023 be the year that the Barclays (LSE: BARC) share price finally starts to deliver results for long-suffering shareholders? I think it could be.

The FTSE 100 bank’s profits held up well during the pandemic, when market conditions favoured its investment banking division. Now, rising interest rates are expected to improve the profitability of the group’s high street bank as lending rates rise.

Still cheap despite gains

Barclays shares have performed well already this year. They’re up by 40% from their October lows.

However, at 190p, the bank’s stock is still trading at a 30% discount to its book value of 286p per share. I think that gap could start to close this year.

I reckon that the key to a higher valuation is for the bank to show consistent profitability. Recent progress seems encouraging to me.

In 2021, Barclays generated a return on tangible equity of 13.4%. During the first nine months of 2022, that figure was 12.5%.

If the firm’s 2022 results — due next week — show a similar performance for the whole of 2022, I think the shares could continue to rise.

Recession worries

Rising interest rates have been good for banks, so far. But this might not continue.

If the UK economy falls into recession, then Barclays could see higher rates of bad debt on mortgages and loans. Credit card arrears at Barclaycard could also rise sharply.

Another risk is that the business could come under pressure to pass on higher interest rates to savers. While big lenders have been quick to increase mortgage rates over the last six months, they’ve been much slower to increase interest rates on savings accounts.

CEOs from the big banks were quizzed about this issue by MPs recently. I’ve already switched my savings account away from a big bank to a smaller lender. I’m now getting 3% interest instead of just 0.6%. I suspect more people will do this unless the banks start to play fair.

My verdict

Current broker forecasts value Barclays shares on a 2023 price-to-earnings (P/E) ratio of six. That’s cheaper than rivals NatWest and Lloyds. In fact, the stock seems cheap to me by any measure, given Barclays’ improved profitability and strong finances.

I think we could see the stock re-rate to a higher P/E ratio this year. One catalyst for this could be the dividend. City analysts expect the shareholder payout to rise by around 20% annually over the next couple of years.

Those numbers give Barclays a 2023 forecast dividend yield of 4.7%, rising to 5.6% in 2024. That looks attractive to me.

Although bank stocks have been disappointing investments since 2008, I think we’re finally seeing a return to normality. In my view, Barclays shares look very cheap at current levels. I reckon they could be a profitable buy.