Morningstar Raises RBS Valuation

Morningstar analyst Erin Davis has increased her fair value estimate on the previously-troubled banking group

Erin Davis 10 November, 2015 | 3:59PM
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We're increasing our fair value estimate for Royal Bank of Scotland (RBS) to 390p from 370p as we incorporate the results of our deep dive into RBS' business. Our fair value estimate is 1.0 times tangible book value and 0.9 times book value as of September 30th.

In our view, RBS destroyed its economic moat—or sustainable competitive advantage—in 2007 with its ill-considered acquisition of ABN AMRO. Enormous losses in 2008, largely a consequence of the merger, resulted in several rounds of government bailouts. UK taxpayers now own more than 70% of the group's shares.

We see RBS' moat trend as stable, as we don't anticipate a significant change to its competitive position. While there are a number of challenger banks in the UK, and we expect them to continue to grow, we don't expect them to pose a significant threat to RBS' competitive position because of the stickiness of retail banking relationships and the continued importance of branch locations for attracting retail customers. We think that the threat of further government interference will fade as the government sells down its majority stake in the bank.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
NatWest Group PLC203.80 GBX0.69Rating

About Author

Erin Davis  is a senior banking analyst for Morningstar.

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