Fresh trading news from Royal Bank of Scotland Group (LSE: RBS) group will command plenty of attention this week. Full-year results are slated for this Friday (14 February), and it’s not just its shareholders who’ll be anxiously watching. Its role as one of Britain’s biggest banks mean it’s a perfect way to gauge the health, and the direction, of the UK economy as we head into 2020.
City analysts expect RBS to report a modest 3% earnings rise for the current year. It’s a period that’s expected to remain beset by Brexit uncertainty that could damage trade for this FTSE 100 bank and others, hence those insipid predictions.
Income from its retail and commercial businesses dropped 3.1% in the third quarter, most recent financials showed. And it’s likely trading activity has remained difficult since then, those broader troubles in the UK economy that are battering business adding to the growing pressure the challenger banks are creating for RBS et al’s revenues performance.
To buy or to avoid?
At current prices, RBS trades on a forward P/E ratio of 9.2 times. This sits comfortably below the Footsie broader average of around 14.5 times. The bank’s corresponding dividend yield of 6.4% also smashes the average of 4.1% for Britain’s blue-chips.
This low rating is a reflection of RBS and its high risk profile, though. The firm’s share price is down more than 40% over the past five years as intense political and economic uncertainty, allied with the persistence of profits-crushing low interest rates, have smacked investor appetite. With these issues threatening to remain for much longer, I’d avoid this particular share at all costs.
How about this oilie?
I wouldn’t be tempted to grab a slice of Royal Dutch Shell (LSE: RDSB) either. City brokers are pretty optimistic over the oil giant’s earnings outlook, consensus being a 26% bottom-line jump in 2020. But I’m not convinced.
I’ve talked before about the threat to crude prices from booming production outside OPEC and uncertainty over future supply cuts from the group itself. The tragic coronavirus outbreak has added an extra threat more recently, and data from Sublime China Information shows why.
Falling demand means refinery rates in China have slumped, to 50.3% on Friday from 64.6% before the Lunar New Year. Stockpiles in the country have meanwhile exploded to 51.7m barrels from 11.6m barrels previously, the commodity market researcher says.
Not only could these numbers continue to shift considerably as the unfortunate coronavirus story develops, but we could see similarly-worrying trends elsewhere, depending on the impact of the outbreak overseas and on the broader global economy.
Shell’s certainly very cheap. As well as carrying a bulky 7.3% dividend yield for 2020, it offers a P/E ratio of 10.2 times too. It’s not cheap enough to encourage me to invest though, given those escalating supply and demand fears.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.