Analysts remain cautious on outlook for RBS despite Q1 beat

2nd May 2014 10:22

Shares in RBS jumped on Friday after the company beat forecasts with its first-quarter results as pre-tax profits doubled.Analysts, however, chose to remain cautious on the outlook for the UK bank.RBS said pre-tax profit surged to £1.64bn in the first three months of 2013, up from £826m the year before, helped by a 6% fall in expenses and a 65% drop in impairments.The stock surged as much as 12% in early trading, before trimming gains by mid-morning. Nevertheless, it was still up 6.4% at 326p by 11:00.According to Numis Securities, the 29% increase in core operating profit to £1.62bn was "way above consensus and our forecast" at £1.30bn and £1.06bn, respectively. The broker said that core impairments of £254m, down from £600m the year before, were half the £524m it had pencilled in. Nevertheless, Numis maintained its 'hold' recommendation on the stock and 300p target price."It seems that these numbers represent the calm before the storm. The initial share price reaction seems tinged with some relief," said Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers.He said that the quarterly performance was "respectable", but the bank is still in the midst of dealing with its legacy issues and warned of higher costs later in the year due to restructuring and the possibility of further regulatory fines."RBS is pursuing a similar route to Lloyds in preparing to simplify and focus its operations, but Lloyds is much further down the road," Hunter said.Similarly, Analyst Ian Gordon from Investec said that while the results offered "welcome relief" for shareholders, "all is not quite so rosy" as the 'beat' would suggest.He said: "Only £0.1bn of a £2.0bn estimated full-year restructuring charge taken in the first quarter and a £0.1bn loss in non-core is a temporary aberration. Don't get carried away!"Investec kept a 'hold' rating and 325p target price.BC