RBS on the right track, but still rated 'neutral' by JPMorgan

14th May 2015 10:34

Royal Bank of Scotland "remains on the right strategic track" despite its recent underperformance against the sector, according to analysts at JPMorgan Cazenove.The US broker said that a sell-down of the government's stake in RBS and the resolution of ongoing litigation charges will be "key milestones" for the bank's long-term turnaround.A government share sale in particular would increase the group's free float and improve liquidity for long-term shareholders and could encourage investment.Nevertheless, JPMorgan maintained a 'neutral' rating on the stock."Over the next three years we see RBS shrinking to a high PE [price-to-earnings] UK retail and commercial bank that could return substantial capital (>£10bn) to shareholders."However, in our view the attractions of the shares lie well beyond our 12-month time horizon, so we remain 'neutral'."JPMorgan kept a 370p target price on the shares, which were up 0.3% at 354.1p by 10:46 on Thursday. After adjusted for FX, the stock has underperformed others in the sector by 16% so far this year.