Morningstar’s equity analysts have lowered their fair value estimate on Royal Bank of Scotland Group (LON:RBS) ahead of the lender’s first-quarter results, while Deutsche Bank has trimmed its price target on the shares. RBS’ results on April 28 will come as the bailed-out lender prepares for new ring-fencing rules, having recently announced that it plans to implement the scheme on April 30.
Morningstar trims fair value estimate
Morningstar recently announced in a note that its equity analysts were lowering their fair value estimate for RBS, from 300p to 290p. The analysts argue that while there are signs of green shoots in the group’s revenue generation, challenges regarding litigation and restructuring costs, as well as revenue generation, remain to be dealt with in the short term.
The analysts further noted that it did not believe that the bank had a sustainable competitive advantage over peers, having lost its economic moat when it made the wrong management decision to acquire ABN Amro in 2007-08, and it has not returned to profitability since.
Morningstar also pointed out that it finds RBS management’s target of a 50 percent cost/income ratio by 2020 rather ambitious, and estimates that the lender will reach 60 percent by 2022.
Deutsche bank lowers price target
Deutsche Bank has trimmed its price targets for RBS and FTSE 100 peers Lloyds (LON:LLOY) and HSBC (LON:HSBA) in the run-up to the lenders’ results. Proactive Investors quoted the analysts as saying in a note that they expect margin pressures to remain the main area of focus for the UK domestic lenders, amidst clear signs of competitive pressure on mortgage pricing. For RBS, the broker lowered its valuation from 305p to 304p, while retaining its ‘buy’ stance on the shares.
UBS flags dividend at RBS
Interactive Investors reported last week that UBS has pencilled in a dividend of 11p a share at RBS in 2018, rising to 22p the following year.