UBS has lifted its rating on Royal Bank of Scotland Group (LON:RBS), following the bailed-out lender’s move to restore its payout to shareholders. Proactive Investors reports that the analysts expect the company to ask shareholders for approval to repurchase stock direct from the UK government next year.
RBS’ share price has fallen deep into the red in today’s session, pressured by emerging market currency woes which are weighing on broader market sentiment. As of 13:40 BST, the lender’s shares were changing hands 1.26 percent lower at 248.93p, as compared with a 0.70-percent dip in the benchmark FTSE 100 index.
UBS turns bullish on RBS
UBS lifted its rating on RBS from ‘neutral’ to ‘buy’ today, hiking its price target on the shares from 285p to 300p. The move came after the bailed-out lender recently announced plans to pay interim dividend, marking the group’s first payout shareholders since it was rescued by the British taxpayer during the financial crisis.
“The first dividend in a decade didn’t dent the balance sheet either: significant special dividends or buybacks – perhaps direct from government – are needed to stop this undervalued surplus capital from growing further,” the analysts pointed out, as quoted by Proactive Investors, adding that expect the FTSE 100 group to ask shareholders for approval to repurchase stock next year, reducing the overhang, increasing index weights and delivering earnings per share accretion.
Analysts flag Brexit risk
UBS, however, sounded a note of caution in the case of a no-deal Brexit scenario, point out that should the UK’s negotiations with the EU fail, it would “expect pressure from margins (Bank of England to cut rates and restart quantitative easing), loan losses (lower house prices, weaker macro-economic assumptions under IFRS 9) and higher risk-weighted assets density”.