Earnings look ahead: Royal Bank of Scotland

The road to recovery was always going to be a long and winding one, and RBS still remain some way off standing on their own two feet without the government's controlling stake.

Royal Bank of Scotland
Source: Bloomberg

On Friday 26 February, RBS is due to release its full-year figures for 2015. The bank’s adjusted earnings per share are called to drop from 0.385p to 0.239p, while annual revenue is called to fall by almost 23% to £14.008 billion. Last year saw the company report an annual profit of £2.643 billion, however, this year that has returned back to a loss of £1.884 billion.

RBS have found 2015 a tough year as both its fundamentals and share price have come under pressure. Although referred to less frequently, the historical issues of PPI mis-selling still hang around, the last quarter alone has seen a further £500 million that the bank has had to set aside. The company has also had to write down £498 million on its Coutts business along with another £1.5 billion in miss-selling in the US housing markets.

As well as posting disappointing updates on how the day-to-day running of the business, the banking sector as a whole has come under real pressure over the last six to twelve months as the oil price has continued to fall. These low levels in oil have seen middle east sovereign funds continue to reduce their exposure to European banks, as they are forced to reduce exposure as energy revenue streams dry up.

  Price / book value Dividend yield 5 year dividend growth
Royal Bank of Scotland 0.60 n/a n/a
Standard Chartered 0.40 2.27% 2%
HSBC Holdings 0.63 8.64% 7.85%
Barclays 0.44 4.40% 9.35%
Lloyds 0.93 1.32% n/a
FTSE 100 0.93 1.32% n/a

 

 As the only major bank quoted in the FTSE for not issuing a dividend, the appeal for holding the company purely for capital returns makes it considerably less attractive. Listed below is a breakdown of the institutional recommendations. The far right column showing the premium between the current share prices and the average 12-month price target highlights that market consensus shows that the bank still has a lot of catching up to do with its peers.

  Buy ratings Hold ratings Sell ratings Current / 12 month price target premium
RBS 12 13 2 31.40%
Standard Chartered 11 15 4 36.90%
HSBC 14 17 5 24.40%
Barclays 20 7 1 56.70%
Lloyds 20 5 5 33.70%

 

RBS revenue chart
RBS EPS chart

The price action after RBS has posted its annual figures has, for the last three years, been negative. With skeletons still coming out of the closet, the investment community have every reason to be sceptical that any surprises will be anything other than disappointing.

RBS shares have fallen by over 40% since the 26 February 2015. Although we have seen numerous halfhearted attempts to break out of this bear market, a break above the 200-day moving average has only occurred twice and fleetingly. The last six months have also seen the 50 and 100 day moving averages increasingly act as a ceiling to any aspirations of a share price recovery.

Being neither overbought nor oversold on the RSI suggests that the five year lows of 220p could once again be tested should results disappoint.  

RBS chart

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.