Credit Suisse ups RBS price target but retains underperform

28th Jul 2014 10:48

Royal Bank of Scotland (RBS) is progressing better than expected on the run-down of the assets of its non-core RBS Capital Resolution (RCR) arm, but its valuation already captures the "steady state" profile of returns which can be expected, according to Credit Suisse.The lender's latest results revealed that the above run-down is more capital efficient than had been expected. In fact, cumulative RCR pre-tax losses, which are now seen at £2.5bn over 2014-16 are at the lower end of RBS' guidance and may yet fall lower still, Credit Suisse explained in a note to clients.However, management has not revised its forecasts for its Tier-1 common equity ratio (CET1) at the end of 2015 (11%) and 2016 (12%), which Credit Suisse already sees coming in at 10.4% and 12.6%, including the impact from the deconsolidation of Citizens. Similarly, the above analysts' forecasts for RBS's loan loss provision ratio in 2015 and 2016 are already running at the lower end of management's guidance. The stock is trading on an 'adjusted' return on tangible equity ratio (RoTE) for 2016 of approximately 6% to 7% and close to 8% in steady state terms. As a result of all of the above, the broker has increased its price target on the shares to 310p from 280p previously, but reiterated its 'underperform' recommendation. AB