RBC Capital ups Shawbrook to 'sector perform', lifts EPS estimates

21st Dec 2016 07:39

(ShareCast News) - RBC Capital Markets upgraded challenger bank Shawbrook to 'sector perform' from 'underperform' and lifted the price target to 280p from 210p as it upped its earnings forecasts.The bank noted the stock is off 26% this year versus the sector average off 2%. In addition, it pointed out that its 2017/18 earnings per share forecasts are now 15%/17% above Bloomberg consensus, adding that consensus is wrong by "a significant margin".RBC said that following talks with management, further controls being implemented, and the nearly six months that has passed since without further incident, it is more confident that the breach was a one-off and is highly unlikely to be repeated, especially given that management turnover has abated.Back in June, Shawbrook revealed that one of its units had accidentally been giving out low-quality loans that broke internal risk rules."The CEO is approaching his one year anniversary, and we believe the interim CFO will become the permanent CFO, which would signal continuity," it said.RBC upped its adjusted diluted EPS forecasts for 2016/17/18 to 26.60p from 26.20p, 37.10p from 35.50p, and 43.10p from 42.10p, respectively.However, the Canadian bank still has some concerns, arguing that accelerating growth into riskier areas could lead to future impairment issues.Also, it said Shawbrook's underwriting standards are largely unchanged, while the majority of Shawbrook's listed peers have tightened standards, meaning that Shawbrook's growth could be resulting from loans deemed unattractive to others.