More on Royal Bank of Scotland
Royal Bank of Scotland: H1 2006 trading statement
The Royal Bank of Scotland said that trading in the half year to June 2006 was in line with expectations.
Highlights of the company’s half year performance are expected to include organic growth in income, a narrowing of margins, good cost control and a small improvement in overall credit metrics.
Income growth is reportedly being driven by corporate business with retail customers choosing to save rather than spend. Non-interest income is expected to make up 60% of the bank’s total income.
Changes in sales mix are said to be responsible for the narrowing of margins.
Costs, never a problem at RBS in the past, are said to be under control and credit metrics, again not a problem with this bank in the past, are said to have improved further. The banks capital ratios have strengthened further with Tier 1 capital ratio at the end of June expected to be “around the middle of the 7% to 8% range”.
Our views on this bank have not changed. Although the environment has weakened RBS looks set to outperform the sector.
A limited venture in China (via a 10% stake in the Bank of China) could provide further upside, along with the full benefit of a number of smaller acquisitions made last year. The Chinese venture does however contribute to an increase in overall risk. A major share repurchase programme could also be on the cards contributing to further upside.
Prospects on the whole still look good, the share trades at 1729p, on a prospective PE (2007 earnings) of 8.5x, at the lower end of the sector range and looking rather cheap. The yield is a healthy 5.2%.
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