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Royal Bank of Scotland upgraded by Deutsche Bank

RBS has underperformed its peers this year but Deutsche Bank reckons the market has missed a trick by not factoring in the bank's sensitivity to interest rate rises
RBS building
Most analysts who cover RBS are sitting on the fence; Deutsche Bank just got off it

Interest rate rises are on the way and should give a lift to state-owned lender, the Royal Bank of Scotland Group PLC (LON:RBS).

According to Deutsche Bank, which has just upgraded RBS, the bank’s interest rate sensitivity is now among the most geared in Europe.

With rates in the UK rising sooner than in Europe, Deutsche (DB) believes RBS’s share price and valuation – 8.8 times projected 2019 earnings per share – represents an attractive entry point.

The stock has underperformed sector peer Barclays and Lloyds and the wider European market year-to-date, partly because of a change in guidance in the 2017 results; RBS no longer gives an explicit cost target for 2020 or a reduction target for 2018, DB noted.

READ: RBS reports first profit in a decade but shares fall on concerns about hefty US fines

According to DB, what the underperformance doesn’t appear to reflect is the change in UK rate expectations since the beginning of the year.

The German bank has upgraded RBS to ‘buy’ from ‘hold’ and shave 10p off the price target at 305p.

According to Factset, the data aggregation specialist, the majority of analysts – 12 out of 20 – hold a neutral position on RBS; seven rate it a ‘buy’ and one as a ‘strong sell’.

View full RBS profile View Profile

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