3 Things That Say Royal Bank of Scotland Group plc Is A Sell

Royal Bank of Scotland Group plc (LON: RBS) shares have done well, but they’re too expensive.

| 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.

RBSOur two bailed-out banks are recovering faster than I would have imagined a few short years ago, but one of them is clearly lagging — and it’s Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US).

If I were to buy one, it would be Lloyds Banking Group. Here are three reasons why it wouldn’t be RBS:

1. Too high, too soon

That’s where the share price has gone.

We still haven’t seen any return to profit from RBS — in fact, the shredded bank reported a cringeworthy pre-tax loss of £8.2bn last year. Sure, there’s a profit of nearly £4.4bn forecast for 2014, but we haven’t seen it yet. With the shares at 324p, we’re looking at a forward P/E of nearly 14, which would be about right for a company that was already profitable and generating cash.

Looking at Lloyds, we’ve already seen a small profit in 2013, with £5.9bn forecast for this year — yet Lloyds shares are on a P/E of only 10.

2. No dividends

We’re also expecting to see a return of dividends at Lloyds, with the bank set to ask the Prudential Regulation Authority (PRA) for permission to make a second-half payment — and its capital ratios look strong enough for that to be granted. The pundits are expecting a 2% yield overall, rising to 4.4% next year.

But we’re nowhere near that with RBS yet. There’s no cash expected this year, and only a stingy 0.5% yield suggested for 2015.

3. Capital ratios lagging

RBS is making progress against the PRA’s new capital requirements, but again it’s slower than the rest. At the end of its first quarter this year, the bank reported a Common Equity Tier 1 (CET1) ratio of 9.4%. That was up from 8.6% at 2013’s year-end and its target of 11% by the end of 2015 is looking good.

But compare with Lloyds again, and we see the Black Horse riding a CET1 ratio of 10.7% at the end of its first quarter — Lloyds has already almost reached RBS’s 2015 year-end target!

Of these two banks, one is worth buying and the other is not, and it seems clear to me which is which.

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 Oscroft has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.

More on Investing Articles

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 »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »