Despite the recent bad news, I still expect Royal Bank of Scotland Group plc (LON:RBS) to end the year almost 50% higher than it trades at today.
In one month's time, Royal Bank of Scotland Group (LSE: RBS) (NYSE: RBS.US) will announce its results for the first three months of 2013. I expect that this announcement will be an important milestone in the bank's turnaround.
RBS shares have take a battering in the last month, falling 13%. After a great 2012, they are down a total of 16% so far this year.
RBS shares have suffered in the aftermath of the crisis in Cyprus. This was followed by the banking regulator announcing that it wants the sector to raise more capital by the end of the year. Bearish sentiments increased further this week as it was announced that investors would be suing the bank regarding a fundraising that it underwent in 2008.
Back in February, shares in RBS changed hands for more than 350p. I believe that a series of events is about to play out that could see RBS shares return to that level in May.
On 3 May, RBS will announce its Q1 results. I believe that this could inspire new confidence in the bank and its ability to generate profits.
In 2012, RBS reported a £5.6bn loss from ongoing operations. This was a result of £5.3bn of impairment losses, £1.5bn paying for misdeeds and a £4.6bn accounting charge (ironically resulting from RBS' perceived rehabilitation).
If RBS can avoid further fines in 2013 and impairments continue to reduce at a similar rate, the company could report an operating profit for the full year of around £2.5bn.
At the end of 2012, RBS announced a tangible net asset value of 446p per share. That's a long way ahead of today's share price.
I believe that profitable companies should not trade at a discount to their asset value. If RBS can convince the market that it will be profitable again, I expect that discount will narrow.
Furthermore, a profitable bank will likely be increasing its asset value. RBS's May statement could demonstrate that the bank's shares are currently too cheap by half.
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> David owns shares in Royal Bank of Scotland