Broker snap: Investec, UBS upgrade RBS to buy

16th Mar 2012 10:41

Royal Bank of Scotland had its rating upgraded by both UBS and Investec on Friday morning, lifting the shares up nearly three per cent early on.Investec downgraded its rating on the stock back in February prior to the bank's full-year results."The fact that it has been the worst-performing UK bank since results probably has more to do with a further round of overdue analyst downgrades - our formerly isolated view that RBS will still be loss-making in 2012E has become more consensual," said analyst Ian Gordon.He says that following the recent pull-back, the investment case - while not overwhelming - is now "adequate"."We do not argue that the buy case for RBS is as compelling as it was back in November 2011 when ridiculous scare stories over capital and funding conspired to take the shares down to 17p. The group is now overtly safe - the loans:deposit ratio is now 108% ("core" just 94%), and a core tier 1 ratio of 10.6%." Gordon says that ongoing non-core "run-off" will further strengthen these metrics.Investec now rates the stock as a buy (hold previously) and maintained its 30p target price.UBS also upped its rating from neutral to buy, raising its target price from 30p to 32.5p. "A more positive view on the UK combined with improving economic momentum in the US where growth expectations are already well embedded will pave a way for improved performance in RBS's core business and should contribute to lower losses in the non-core division," UBS said.BC