Should You Buy Royal Bank of Scotland Group plc Shares At A Six-Month High?

Almost completely unnoticed by the mainstream media, shares in bailed-out bank Royal Bank of Scotland Group plc (LON: RBS) have stormed ahead.

| 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 government rescue of Royal Bank of Scotland (LSE:  RBS)(NYSE: RBS.US) was the UK’s worst moment of the financial crisis. Since then, speculation over the bank’s long-term profitability has led to large share price moves.

Anyone owning the shares will have recently enjoyed their outperformance. Could there be more large gains to come?

The recent rise

In the last month, RBS shares are 8.5% ahead. Many commentators claim that Lloyds is better placed to benefit from economic recovery — but its shares are up just 1.1% in a month. Both have done better than the FTSE in that time, which has fallen 0.5%.

Since the beginning of July, WPP is the only share in the FTSE 100 that has outperformed RBS.

There are only six days in 2013 when the RBS share price has been higher than it is today. At the current share price, RBS is just 2% off a two-year high.

Reasons for the rise

The RBS share price has benefited from three main factors. Less political heat, increased confidence in the UK economy and a low valuation.

One year ago, politicians were calling for RBS to be broken up, claiming that this was a vital step to boost economic growth. Now that UK GDP has been rising and unemployment falling, the prospect of the government’s clunking fist smashing up RBS has receded. A reduction in the break-up risk has boosted the shares.

Add in the fact that a strong economy will always be good for bank profitability and the scene was set for a significant share price rise. RBS’s bargain rating (still a 23% discount to book value) then turbocharged these gains as value seekers piled in.

Verdict

RBS’ recent trading and prospects suggest that the bank has emerged from past losses and is now back to being a profitable bank. The last reported book value of 445p should now be heading upwards, inspiring further share price rises.

I am delighted with the recent rise and stand by my expectation of a 400p share price by the year end. The company’s next trading statement will be key to whether this target is achieved.

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.

> David owns shares in Royal Bank of Scotland but none of the other companies mentioned.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »