View the article online at http://citywire.co.uk/money/article/a735125
Sell?! The City's lowest-rated FTSE 100 stock
Is the least-liked stock among City analysts (clue: it's a bank) in fact an ‘ugly duckling'?
City analysts are loath to dish out many ‘sell’ recommendations whatsoever, but they’ve made an exception for one FTSE 100 stock: Royal Bank of Scotland (RBS.L).
RBS is analysts’ least favourite FTSE 100 stock, according to the average buy, sell or hold rating assigned by City brokers. The 81% taxpayer-owned company has the lowest recommendation score of UK blue chips, data from Thomson Reuters show.
The bank, which has managed a share price gain of just 2% over the past year, trailing Lloyds’ 50% leap, has repeatedly dashed hopes of a recovery.
Ahead of 2013 annual results next Thursday (27 February) RBS has already warned of a ‘substantial’ loss for 2013, when it announced a move to hive off its toxic assets into a 'bad bank' in November.
The creation of the bad bank was met with murmurs of ‘too little, too late’. The move was intended to strengthen the bank's balance sheet allowing RBS to satisfy regulators and target a core tier 1 ratio of around 11% by the end of 2016. Its current ratio is a lowly 8%.
This in turn should bring forward the day it can resume dividend payments to shareholders and, crucially, the point at which the government can reprivatise the bank and start to sell its 81% stake.
Also in November Ross McEwan, who replaced Stephen Hester as the bank's chief executive last year, also confirmed plans for a partial flotation of Citizens, its US business, which it would also exit completely by 2016.
Then, at the end of January RBS reminded investors of the scale of its problems, using an unscheduled trading update – or ‘kitchen sinking’ exercise as frustrated investors called it – to announce an extra £3.1 billion to cover legal and compensation costs for past misdeeds. Some analysts are now pencilling a 2013 pre-tax profit loss of over £6 billion.
Of the few analysts who say RBS is worth buying, only Liberum’s Cormac Leech has a strong track record on the stock. For Liberum RBS is actually a ‘conviction pick’. Leech, describing RBS as the ‘Ugly Duckling’, points to the bank’s potential to be ‘highly profitable and low risk by 2017’.
Some patient fund managers are sticking their necks out too. RBS is a top 10 holding in River and Mercantile UK Eq Long Term Recovery , one of the best performing funds of 2013.
In December value equity specialist Daniel O’Keefe, the Citywire AAA-rated manager of the Artisan Global Value fund , told Citywire how he had bought into RBS, while criticising the 'populist' attacks on the bank since the 2008 financial crisis.
O’Keefe said the bank had made ‘tremendous progress’ since the financial crisis and restored a robust capital position, which was being overlooked by many investors.
In other words, the scale of analyst disenchantment with RBS underscores the potential for more contrarian investors to make money if RBS does pull through.
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In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
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- Royal Bank of Scotland Group PLC (RBS.L)
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