RBS a ‘buy’ as it becomes best performing bank after August trough

11th September 2015


Shares in Royal Bank of Scotland may be languishing at 330p by Investec analysts believe the stock has more to offer.


Investec analyst Ian Gordon said that although shares in the bank are still at 330p, ‘UKFI’s now infamous 4 August exit price’, the bank has been a top performer since the August crash.


He also argued that the delay to the buy-back of shares should not be taken negatively. On 30 July, RBS decided to defer the commencement of a return of a capital surplus to shareholders until 2017.


‘It has actually been the top performing FTSE 100 bank since the market trough of 24 August – up 7%,’ he said.


‘We think there is plenty more to go for. Our perception is that many would-be investors have interpreted the decision to postpone RBS’ share buyback until at least Q1 2017 as de facto confirmation that the scale of capital return is illusory.


‘We entirely disagree; or prior forecast of £10 billion in 2016, becomes £12.5 billion in 2017.’


Gordon added that the delay, which has been implemented to ensure the bank passes stringent stress tests of which the results are due in December 2016, should not worry investors.


‘We strongly disagree with this ‘timing decision’ but so be it – we expect to spend much of the next 18 months simply marvelling at the sheet size of the RBS’ capital surplus and wondering why it is just sitting there gathering dust,’ he said.


‘In our view, the RBS story offers steady incremental encouragement. The two truly transformational pieces are the disposal of Citizens Financial Group and the decimation of its corporate and institutional banking division.


‘With Citizens, RBS is already down to a 21% stake and plans to exit in full this year. Corporate and institutional offers a steady flow of small ‘milestones’.’


Gordon retained a ‘buy’ recommendation and target price of 395p on the stock.


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