Shares in Royal Bank of Scotland Group (LON:RBS) have climbed into positive territory in today’s session as Morgan Stanley lifted its valuation on the bailed-out lender in the wake of the group’s settlement with the US Department of Justice (DoJ) over mis-sold mortgage-backed securities.
As of 14:31 BST, RBS’ share price had added 0.67 percent to 256.20p, outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.51 percent lower at 7,592.28 points. The group’s shares have added a little more than two percent to their value over the past year, as compared with a near one-percent gain in the Footsie.
Morgan Stanley lifts RBS’ valuation
Morgan Stanley hiked its price target on RBS from 315p to 335p today, while maintaining its ‘overweight’ rating on the shares. The move followed the bailed-out lender’s $4.9-billion settlement with the DoJ, which has also allowed the UK government to resume its disposals of shares in the group.
“Post DoJ we see more room for RBS to improve its capital structure reducing funding costs and increasing shareholder returns via share buybacks/special dividend,” the broker’s analyst Alvaro Serrano and his team said in a note to clients, as quoted by Proactive Investors, adding that with 16.4-percent CET1 ratio 2018E vs their estimated steady state of 13.5 percent, they believe that the bailed-out lender “would be able to pay out at least 100% of earnings in 2019/2020E once it passes the stress test”.
‘Preferred UK domestic name’
Proactive Investors further quoted the broker as noting that RBS was its “preferred UK domestic name,” trading on 9x adjusted earnings compared with a sector average of 11.7x, while offering “one of the highest shareholder return profiles in Europe”.