RBS share price: Berenberg trims valuation on lender

RBS share price: Berenberg trims valuation on lender
Written by:
Tsveta van Son
5th September 2019
Updated: 11th March 2020
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Berenberg has lowered its target on the Royal Bank of Scotland Group’s (LON:RBS) share price, after management conceded that the part government-owned group was now unlikely to achieve a 12-percent return on tangible equity by 2020, Sharecast reports. The update comes after the FTSE 100 lender hiked its provision for the payment protection insurance scandal yesterday.

RBS’ share price has advanced in early London trade this morning, having gained 0.73 percent to 185.40p as of 08:03 BST. The shares are outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.13 percent higher at 7,320.78 points.

Berenberg lowers RBS price target

Berenberg, which is bullish on RBS with a ‘buy’ rating, lowered its price target on the shares from 340p to 280p. Sharecast quoted the broker as commenting that while the lender’s strategy was delivering “profitable growth, meaningful cost reductions and substantial capital returns,” this was simply ‘not enough’ for many investors.

The analysts elaborated that many were struggling to look beyond the current margin pressure, which had prompted RBS’ board to accept that it would most likely be unable to meet its return on tangible equity targets in time.

Berenberg reduced its full-year 2020-21 earnings per share estimates for the FTSE 100 lender by approximately six percent, mainly on account of lower net interest margins, compounded by lower expected buybacks.

Prospective returns being ignored

Sharecast, however, also quoted Berenberg as commenting that it believed that RBS is able to deliver a double-digit dividend yield, alongside share buybacks of circa £3 billion over three years, and that these prospective returns are ‘being ignored’. The broker also pointed out that the FTSE 100 group’s efforts bolster returns and offset revenue headwinds had seen operating costs fall by roughly £170 million during the first half.

According to MarketBeat, the bailed-out lender currently has a consensus ‘buy’ rating, while the average target on the RBS share price stands at 270.23p.

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