Royal Bank of Scotland Profit Surges

But Morningstar analysts leave their fair value for RBS unchanged as most of last year's improvement in operating profit was due to lower costs

Morningstar Manager Analysts 15 February, 2019 | 4:27PM

RBS

Royal Bank of Scotland (RBS) reported full-year 2018 operating profit of GBP 3.4 billion, up 50% from last year. We maintain our fair value estimate of 290p per share and no-moat rating despite this seemingly outstanding performance. Having a closer look at results, the lion’s share of operating profit improvements came from lower strategic costs booked, which are guided to increase next year again.

Net interest income declined to £8.7 billion from £9 billion last year. To give credit where credit is due, RBS did lower its operating costs by 3% and plans further reductions of £300 million, equivalent to 4%, next year. Also, total income generation was up 2% as other non-interest income more than offset the weaker spread business. To sum up our subdued enthusiasm for the results presented on February 15, we would point investors towards the return on equity of 4.8% in 2018 compared with 2.2% last year, still far behind our cost of equity assumption of 9%.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
The Royal Bank of Scotland Group PLC122.55 GBX0.86

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Morningstar Manager Analysts

Morningstar Manager Analysts  research and rate hundreds of OEICs, unit trusts and investment trusts available for sale in the UK.

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