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Berenberg lowers target price for RBS
4th Sep 2019 09:24
(Sharecast News) - Analysts at Berenberg lowered their target price on retail bank The Royal Bank of Scotland from 340.0p to 280.0p on Wednesday after management conceded that the lender was now unlikely to achieve a 12.0% return on tangible equity by 2020.
Berenberg said that despite a challenging environment, RBS' strategy was delivering "profitable growth, meaningful cost reductions and substantial capital returns".
But the German bank pointed out that for many investors, this was simply "not enough". In particular, Berenberg said many were struggling to look beyond the current margin pressure, which had prompted RBS' board to accept that it would most likely be unable to meet its return on tangible equity targets in time.
The broker's analysts reduced their full-year 2020-21 EPS estimates for RBS by approximately 6%, mainly driven by lower net interest margins, compounded by lower expected buybacks. Berenberg's 2019 estimates on the other hand did rise modestly, but only reflecting non-operational effects.
"Following these adjustments, we believe consensus EPS estimates remain 4-6% too low," said Berenberg.
However, while disappointing, Berenberg believed the share price reaction to the news had been "too severe", particularly considering RBS' double-digit dividend yield.
"We believe RBS is able to deliver a double-digit dividend yield, alongside share buybacks of circa £3.0bn over three years. However, these prospective returns are being ignored," they wrote.
Berenberg, which reiterated its 'buy' rating on the group despite the target price cut, highlighted that RBS' efforts to bolster returns and offset revenue headwinds saw operating costs fall by roughly £170.0m during the first half.
Guidance from the lender that full-year restructuring costs should be towards the lower end of the previously guided range of £1.2bn-1.5bn provided the analysts with further comfort.
Berenberg said that despite a challenging environment, RBS' strategy was delivering "profitable growth, meaningful cost reductions and substantial capital returns".
But the German bank pointed out that for many investors, this was simply "not enough". In particular, Berenberg said many were struggling to look beyond the current margin pressure, which had prompted RBS' board to accept that it would most likely be unable to meet its return on tangible equity targets in time.
The broker's analysts reduced their full-year 2020-21 EPS estimates for RBS by approximately 6%, mainly driven by lower net interest margins, compounded by lower expected buybacks. Berenberg's 2019 estimates on the other hand did rise modestly, but only reflecting non-operational effects.
"Following these adjustments, we believe consensus EPS estimates remain 4-6% too low," said Berenberg.
However, while disappointing, Berenberg believed the share price reaction to the news had been "too severe", particularly considering RBS' double-digit dividend yield.
"We believe RBS is able to deliver a double-digit dividend yield, alongside share buybacks of circa £3.0bn over three years. However, these prospective returns are being ignored," they wrote.
Berenberg, which reiterated its 'buy' rating on the group despite the target price cut, highlighted that RBS' efforts to bolster returns and offset revenue headwinds saw operating costs fall by roughly £170.0m during the first half.
Guidance from the lender that full-year restructuring costs should be towards the lower end of the previously guided range of £1.2bn-1.5bn provided the analysts with further comfort.