Broker snap: Goldman downgrades RBS to 'neutral'

12th Nov 2013 10:46

Analysts at Goldman Sachs have a positive view on the strategy outlined by Royal Bank of Scotland alongside its third quarter results.However, the group's new target for common Tier-1 equity, of over 12% versus over 10% before, means that there is now reduced upside potential in RBS shares, "towards the bottom of the range we have previously estimated across various restructuring scenarios (369-449p a share)", they said in a research note issued on Tuesday morning. More specifically, Goldman's new price target, which incorporates new assumptions and scenarios for the lender's return on equity and cost of equity, comes down to 370p from 400p before. That means the stock now offers similar upside to their broader coverage and hence they remove RBS from their 'buy' List and downgrade to 'neutral'.Nevertheless, they do believe that the new strategy addresses the group's "key challenges", namely muted core returns and an elevated cost of capital. Similarly, they think the bank's updated targets, which they peg at core return on tangible equity (RoTE)/earnings per share of 11%/42p, are realistic.AB