Royal Bank Of Scotland Group Plc’s Strategy Makes Me More Bullish Than Ever

I’m encouraged by the way in which Royal Bank of Scotland Group plc (LON: RBS) is turning itself around — and I think you should be, too.

Peter Stephens

Having held various senior management positions in the manufacturing sector, Peter founded his own manufacturing company in 1996. This was subsequently sold in 2007. Meanwhile, his passion for investing (which began during the privatisations of the 1980s) remains strong and he couples this with writing for The Motley Fool as a Contractor. His investment style is value-oriented; focusing on company fundamentals, as well as assessing the strength and presence of a competitive advantage. While above-average growth prospects remain very attractive, a greater focus on dividends has crept in since Peter became a part-time retiree in 2007.

Published 29 August, 2013 9:56 am BST

| More on: NWG

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.

As my fellow Fools may recall, there have been some rather troublesome issues surrounding the sale of vast swathes of the RBS (LSE: RBS) (NYSE: RBS.US) branch network, with a sale having reached an advance stage before the bidder, Santander, pulled out.

Indeed, Lloyds had a similar issue with the sale of its branches to Co-Op, with the mutual pulling out at a similarly advanced stage as a result of question marks being raised about its capital base.

So, it seems that the sale process is not quite as straightforward as one would wish it to be.

However, this time around it seems that RBS is in a far stronger position than last time, with there being three bidders vying to purchase hundreds of RBS branches in England. Indeed, having multiple bidders substantially increases the chances of the deal going through this time because, should one drop out, there are (in theory) two to take its place.

Furthermore, the fact that there are three bidders is at least partly due to RBS courting the City in an attempt to drum up interest for the branches. This has impressed me because RBS seems to have realised that when the sale of branches is up in the air, it creates uncertainty and dampens market sentiment. Although RBS is doing some great work in focusing on the core parts of its business (the ones that make the most money and which require the least capital), it needs to actually make disposals so it — and the market — can move on and focus on the ‘new’ RBS.

In addition, RBS has come up with a plan B, where it will float the business itself should none of the bids be attractive enough. This shows that the bank really does appreciate that it needs to get rid of the branches and continue on its comeback trail, or else its share price is unlikely to head north anytime soon.

Indeed, the fact that it is switched on and focused on the sale gives me a large dollop of encouragement.

Furthermore, earnings per share are forecast to be 30p in 2014, putting shares on a forward price-to-earnings (P/E) ratio of just 11. Meanwhile, dividends could begin to be paid as early as 2014 and could help to improve sentiment by showing the market that RBS really is starting to turn its fortunes around.

Of course, you may be looking outside of the banking sector for an addition to your portfolio. If you are, The Motley Fool has come up with a shortlist of its best ideas called 5 Shares You Can Retire On.

It’s completely free to take a look at the shortlist and I’d recommend you do so. Click here to view those 5 shares.

> Peter owns shares in RBS.