RBS share price: Jefferies flags capital distribution next year

on Apr 12, 2016
Updated: Oct 21, 2019

Analysts at Jefferies expect Royal Bank of Scotland Group (LON:RBS) to distribute capital next year as it continues to improve returns at its core business. The analysts, who remain bullish on the bailed-out lender, however trimmed their price target on the stock.

RBS’ share price jumped in the previous session, adding 1.32 percent to 214.30p and outperforming a flat London market. The shares have lost nearly 40 percent of their value over the past year.
Jefferies reiterated its ‘buy’ recommendation on RBS yesterday, while lowering its price target on the stock from 482p to 370p.
“We reiterate our “buy” stance on RBS predicated on improving returns in the core business and excess capital of £11 billion which we expect can be distributed from 2017,” the bank’s analyst Joseph Dickerson was quoted as saying, adding that the group’s “inefficient balance sheet” represented an opportunity for improving earnings and revenue.

RBS, which was bailed out by the UK taxpayer during the financial crisis, has been struggling to return to profitability with costs for restructuring and past misconduct weighing heavily on the group’s performance. Earlier this year, the lender warned that outstanding issues such as a potential settlement with the US over mis-sold mortgage-backed securities, and challenges related to the separation of its Williams and Glyn business meant that the group considered it “more likely that capital distributions will resume later than Q1 2017”. Last month, however, RBS moved a step closer to restoring payouts to shareholders, by repaying its Dividend Access Share to the UK government.
Jefferies’ Dickerson added that the analysts had reassessed RBS’ earnings power in the group’s core business and now expected the company’s 2017 core earnings per share to total 29p, down from a previous forecast of 37p, due to lower revenue and higher costs than originally modelled.
“We continue to believe that RBS can repatriate excess capital in 2017 and that could lead to significant rerating potential,” the analyst concluded.
As of 07:39 BST, Tuesday, 12 April, Royal Bank of Scotland Group share price is 214.30p.

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