RBS gains on upbeat notes by RBC Capital, Morgan Stanley

25th Sep 2015 09:06

(ShareCast News) - Royal Bank of Scotland got a boost on Friday from a couple of upbeat broker notes.RBC Capital Markets upgraded RBS to 'sector perform' from 'underperform', keeping the target price at 350p, saying it sees 11% upside to the share price."We have taken a fresh look at the investment case and rebuilt our model based on new disclosure for the go-forward bank and exit bank," it said.The go-forward bank is centred on the core NatWest and RBS retail and commercial banking operations.RBC said its 'underperform' rating was based on its view that the original "bad bank" was too small and the residual corporate and institutional division, art 35% of the group, would not generate returns above the cost of equity and nor would the group.The Canadian bank noted that RBS' revised strategy involves downsizing the CIB division to 15% of risk-weighted assets and becoming 80% inside the UK ring-fenced bank. The go-forward bank, meanwhile, is targeted to deliver over 12% return on tangible equity by 2019 at 13% tier 1 capital ratio.It said it expects most of the exit bank to be 'exited' by end 2016 and for peak litigation charges to have passed such that RBS can return to paying a dividend in 2017."Execution of the plan and return of excess capital is sufficiently discounted in the current share price and there is both upside and downside risk to the valuation given the scale of restructuring and number of moving parts," said RBC.The stock also benefited from positive comments from Morgan Stanley, which replaced Barclays with RBS in its preferred names in the sector.At 0937 BST, RBS shares were up 2% at 317p.