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Home Markets Markets RBS: A speculative Buy?
RBS: A speculative Buy? PDF Print E-mail
Written by Sam Coventry   
Wednesday, 10 March 2010 12:15
Brokers suggest a target price of 55p should be sought on RBS stock.



RBS (LON:RBS) is trading 2.49% higher at 39.95 in mid-morning trade in London. However, the team at CFD advisory service Galvan suggest investors should be targeting 55p as the potential for upside movements in the stock grows.

In a research note on RBS, Galvan suggested that because RBS largely lost out on last years stock market gains, it was high time the bank comes to the party.

"In fact RBS ended up being the worst performing stock in the FTSE 100 last year, down 40%. Is RBS finally at bargain levels or are the shares a value trap?" says the research note.

RBS finds itself in that club of financial stocks that were treated with caution last year; banks such as Citigroup, RBS and Lloyds Banking Group simply failed to get off the ground.

And the reason for this was justified - they were a mess. They were structurally unsuited to a post financial crisis world, weighed down by bad debts and non-core businesses that slowed them down.

But, look at how Citigroup is starting to take off. Investors are seeing Citigroup in a new light. Restructuring and a concerted effort to get back to core activities are winning supporters back.

RBS has been offloading assets at a steady pace, and it is believed that the same optimism that has found Citigroup will find RBS.

"A large chunk of the Asian unit was sold to Australia’s ANZ bank. The rest of the Asian unit is being fought over by HSBC and Standard Chartered. The loss of this unit will not be critical as the Asian operations were sub-scale," say Galvan.

Then of course there are the sales here in the UK.

The sale of over 300 bank branches mainly in England and Wales, has generated plenty of potential buyers. The loss of these branches shouldn’t have a big impact. RBS is comfortable that its regional brands have strong and established market positions, which will be difficult for competitors to unsettle. The combination of Natwest in England, RBS in Scotland and Ulster in Northern Ireland looks formidable.

In addition there were the sales of part of Sempra Commodities to JPMorgan, and in the pipeline is the sale of payments processing division, Global
Merchant Services.

Galvan believe that the low expectations on RBS improve the odds of positive surprises and scope for broker upgrades.

But they also warn that this is not a stock for the faint hearted. The bank has a long way to go before it returns to profit, and the uncertain nature of the UK economy could weigh on progress.

Indeed, Galvan's note ends: "for those looking to back a post credit crunch winner, Barclays and Standard Chartered look more solid propositions."
Last Updated ( Wednesday, 10 March 2010 12:19 )