By Connor Campbell, Financial Analyst, Spreadex
Stock of the day: Royal Bank of Scotland Group PLC (LON:RBS)
A couple of times now this year RBS has built up a head of steam, only for any momentum to gradually siphon away. The first instance of this was in the run up to its full year statement at the end of February. Until then RBS had had a pretty hopeful start to the year, with the potential for a restarted dividend lifting the stock to a 12-month high of £2.61 a few days before its annual results.
What investors got instead was its ninth consecutive full year loss, this time to the tune of £7 billion, thanks to a series of one-off items including a near £6 billion kitty for impending fines and legal costs. This sapped the optimism from the stock and led to a rocky start to spring, sending it back below £2.30 by mid-April.
RBS soon found itself back on the front foot, however, as the confluence of Theresa May’s snap election announcement and a positive first quarter update just over a week later left the stock tickling £2.70, a price last seen in January 2016. In that Q1 statement the bank smashed forecasts, posting a pre-tax profit of £259 million against the £50 million expected to mark its first profitable quarter since 2015
Yet come late May the stock was struggling to cling to its post-Q1 growth, as pre-election jitters took hold of the market. Add onto that the shock election result and by the end of June RBS was trading at a 2-month low of £2.44. A month later and, despite a brief foray back to £2.60, the stock needs an injection of good news, sitting at a current trading price of £2.52.
The stock may well get the boost it needs on Friday. Analysts are expecting a second consecutive quarter of profit, with forecasts putting the figure at £343 million. How investors react to this could depend on their stance on RBS’ looming fines.
Earlier in the month, the bank agreed a £4.2 billion settlement with the Federal Housing Finance Agency. The biggie, however, is still to come, with RBS yet to reach an agreement with the US Department of Justice, a dark cloud that has hung over the stock for the last few years. Any update on when a figure may be announced, then, will be more than welcome.
Royal Bank of Scotland Group PLC has a consensus rating of ‘Hold’ alongside an average target price of £2.45.
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