Natixis upgrades RBS as investment thesis reaches turning point

Michele Maatouk Sharecast | 17 Mar, 2017 13:35 - Updated: 13:35 | | |

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17:20 28/04/17

Natixis upgraded its stance on Royal Bank of Scotland to 'buy' from 'reduce' as it lifted its price target by 29% to 289p, saying the investment thesis is reaching a turning point.

The French investment bank said the time is near when the long-standing strengths of the core bank will outweigh the material drag of legacy items. It pointed out that management, which has built a reputation for realism, foresees a statutory profit in 2018 after 10 years in a row of losses.

Natixis said fears over the impact of Brexit on what is increasingly a UK-focused business have not materialised yet and its central case is now for a less severe economic slowdown.

"Relative to other UK banks the RBS investment case includes more upside from self-help factors (cost reduction, above average growth in core markets) and the cessation of historic problems (litigation, de-risking)."

While Natixis sees limited excess capital in the balance sheet currently, it expects the emergency of a highly capital generative bank following the restructuring.

"Our valuation is based predominantly upon intrinsic profitability and future organic capital generation.

"We assume that dividend payments will resume in 2018 following resolution of US litigation and expect that the ability to generate returns above the cost of equity will support attractive yield characteristics for the shares."

At 1333 GMT, the shares were up 2.2% to 246p.

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