Why Royal Bank of Scotland Group plc Has Great Growth Prospects

Royal Bank of Scotland Group plc (LON: RBS) is heading back to health.

| 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.

rbsRoyal Bank of Scotland (LSE: RBS) (NYSE: RBS) shares have not had such a good year as those of fellow struggler Lloyds Banking Group, but that’s because the black horse bank has returned to profit a good bit sooner and is closer to paying decent dividends again.

In fact, compared to Lloyds’ share price gain of around 50% over the past 12 months, RBS has seen its price actually fall a few percent, to today’s 341p.

But what are its growth prospects looking like? Here’s what the current analysts’ consensus suggests:

Dec EPS Change P/E Dividend Change Yield Cover
2013 -10.7p n/a n/a 0p n/a 0% n/a
2014 24.9p n/a 13.9 0.4p n/a 0.1% 62x
2015 28.8p +16% 12.0 4.1p +925% 1.2% 7.0x

Lagging behind

Essentially, RBS is about a year behind Lloyds — a return to positive earnings is expected this year, and a resumption of some sort of reasonable dividend is not on the cards until 2015.

But after five years in a row of pre-tax losses and a loss of £666m expected for the year just ended in December 2013, this year should see the bank in the black again and will hopefully mark the start of a few years of healthy earnings growth.

Royal Bank of Scotland is scheduled to deliver full-year results on 27 February, and like Lloyds, the bank is going to be setting aside substantial sums to cover the ongoing costs of past misdeeds.

More redress costs

In its January trading update, we heard that £1.9bn is earmarked for various claims relating to mortgage-backed securities and associated litigation, a further £465m is down for payment protection insurance mis-selling, and £500m more is to go towards redress of sales of interest rate hedging products — RBS is also suffering from higher-than-expected claim success rates.

The bank had earlier reported a pre-tax loss of £634m for the third-quarter, after swallowing a £496m accounting charge. But its Core Tier 1 ratio had reached 9.1% on a fully loaded Basel III basis, which is looking a lot healthier, and is expected to reach 11% by the end of 2015.

Cautious optimism

We do still have RBS’s internal “bad bank” looming over any recovery, but it’s looking increasingly like 2013 could be the last of the really bad years. And I think we can be cautiously optimistic about the forecast earnings growth starting this year — with maybe even an above-average dividend by 2016.

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 Royal Bank of Scotland or Lloyds Banking Group.

More on Investing Articles

Happy couple showing relief at news
Investing Articles

9.9% dividend yield! Is this FTSE 100 stock a brilliant bargain?

This leading British enterprise looks like a delicious deal for passive income, trading at a low multiple while offering a…

Read more »

Investing Articles

If I’d put £5k in a FTSE 100 tracker fund 5 years ago, here’s what I’d have now

Investing in a FTSE 100 index fund is a terrific way to start building wealth passively with minimum effort. But…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

What’s going on with the Scottish Mortgage share price now?

The Scottish Mortgage share price is up 30% over the past 12 months, outperforming the index. Our writer explains why…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Here’s how investing £10 a day could create passive income of £27,573 a year!

Charlie Carman explains how he'd build a sizeable passive income portfolio over time by investing a tenner a day in…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

If I’d invested £10k in Greggs shares two years ago here’s what I’d have today

Harvey Jones wishes he'd bought Greggs shares two years ago and wonders whether the FTSE 250 stock still offers the…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

How I’d aim to turn an empty ISA into a £1m portfolio by targeting cheap shares

Harvey Jones is trawling the FTSE 100 for cheap shares to add to his Stocks and Shares ISA, in the…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

I’d start investing by buying shares with these 3 characteristics

Christopher Ruane explains how he would start investing if he was beginning from scratch, using a trio of key principles…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£3 a day now could earn me £5 a day of extra income in future. Here’s how.

By putting aside a few pounds each day, within 15 years our writer could be earning a fiver of extra…

Read more »