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RBS sheds its legacy and has capital to spare, Berenberg says
Royal Bank of Scotland has overcome its troubled legacy and the market undervalues its £5bn of excess capital, Berenberg analysts said as they increased their medium-term target for the share price.
By settling £13bn of legacy issues in the past year, including $4.9bn (£3.7bn) for selling mortgage-backed securities in the US, RBS had made "the final leap to normality", Berenberg said.
The broker kept its 'buy' rating on RBS shares and increased its price target from 300p to 340p - 50p higher than the share price when the note was published.
RBS has £5bn of excess capital, or 40p a share, and this can support material share buybacks after dividends, Berenberg analysts said, predicting a 15p ordinary dividend per share in 2018 rising to 25p in 2019 as well as chunky special dividends.
Investors are wrong to see RBS dropping its £6.4bn cost target as disappointing because the decision reflects stronger revenue performance, the analysts said. RBS's simplification plan will create £1bn of cost savings by 2020, they added.
"RBS continues to deliver material cost savings and risk-focused revenue growth. Investors may feel they have been here before, with dividend hopes quashed at the last minute by exceptional costs," the analysts said. "We believe this time is different and that the market fails to value RBS's excess capital."