Broker snap: Consensus downgrades in pipeline for RBS, says Nomura

23rd Feb 2012 10:40

Nomura has maintained its reduce rating and 26p target price for part-nationalised lender Royal Bank of Scotland (RBS), saying that while the group's full-year results were broadly in line with expectations, consensus downgrades are now in the pipeline."Overall, RBS results were similar to expectations. The overall tone is relatively cautious in terms of guidance for the 2012 outlook and the deferral/reduction of longer-term profitability targets. While neither of these is surprising, we view this as negative for the UK banks and consensus expectations," the broker said.Consensus estimates are looking for a pre-tax profit of £3bn in 2012 and given that Retail and Commercial (R&C) banking is expected to be flat, the broker thinks that this must imply cost reductions given the revenue headwinds."Assuming Core revenues remain flat in 2012, current consensus implies that non-core losses will fall by £1.1bn in 2012, which we see as demanding, and hence see downside to consensus estimates."While Nomura highlights that the group has continued to restructure its balance sheet significantly, with the results being equivalent to earnings per share of 3.8p in the Core business operations, it thinks that it will be "several years" before this level of earnings is achieved - "the company still has considerable restructuring to undertake".Nevertheless, the results were taken well by the markets this morning, with shares trading 4.1% higher at 28.45p by 10:47.BC