Will Royal Bank of Scotland Group plc Really Make £3.8bn This Year?

Royal Bank of Scotland Group plc (LON: RBS) is back in analysts’ favour.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The key question for our two bailed-out banks has been when will they finally get back to profit.

For Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) it’s already been answered, after the bank posted a modest £415m pre-tax profit for the year just ended in December 2013 — and there are significantly better profits forecast for the next year or two.

Still waiting

rbsBut for Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) we’re not there yet — though 2014 should hopefully be the year. By this time next year, we should have heard of a pre-tax profit of around £3.8bn, with more than £4.6bn to follow in 2015 — if analysts’ forecasts are to be believed.

Whether those forecasts are worth anything is actually debatable, as investors have not responded to them with much enthusiasm — the share price is pretty much flat over the past 12 months, even though today’s 302p level puts the shares on a 2015 P/E of a fairly modest 11.5.

Pessimism all round

Part of the problem is that, even with profits finally back in sight, we still have a significant bunch of analysts urging us to sell RBS shares. In fact, 12 out of 28 have issued Sell recommendations, with only four apparently believing the shares are worth buying — the rest are sitting on the fence.

Another downer comes in the form of dividend forecasts, with a trifling 0.1% yield currently being forecast for December 2014 — and that only rises to 0.5% based on 2015 predictions. By comparison, the City is expecting a 2.1% yield from Lloyds this year, rising to 4.4% in 2015. That’s from shares on P/E valuations of only 10.3 and 9.3 for the two years respectively, so it’s easy to see why analysts and investors are favouring Lloyds right now — there’s a very big Buy contingent at Lloyds at the moment.

The trend is our enemy

The trends have been going in opposite directions at the two banks, too.

For Lloyds, 12 months ago the City experts were forecasting 2014 EPS of 5.5p with a 1p dividend — and a year on, those expectations have been beefed up to EPS of 7.3p with a 1.5p dividend.

But the opposite has been happening at Royal Bank of Scotland, with 32p EPS having been on the cards a year ago followed by a decline to 24p today. And the days when decent dividends are likely to be paid have been pushed back, too — over the year, we’ve seen a decline in the 2014 dividend forecast from 1.6p per share to just 0.4p now.

Not looking great

Whether that £3.8bn pre-tax profit forecast comes good remains to be seen — but even if it does, RBS still looks poor value compared to Lloyds.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan does not own any shares in RBS or Lloyds.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »