Royal Bank of Scotland Group PLC (LON:RBS) shares were higher this morning after the lender had its price target upped by Swiss investment bank UBS.
Analyst Jason Napier said last week’s results “exceeded [his] expectations again”, with second quarter adjusted profit before tax 16% ahead of his estimates and costs beating his forecast by 5%.
READ: HSBC sees risks ahead for RBS but still upgrades after ‘lacklustre’ share performance
“RBS looks on track in its pursuit of a 12% return on tangible equity (ROTE) in 2020,” Napier wrote in a note to clients this morning.
The analyst highlights that there is “still lots to think about on legacy matters”, not least the fact that it has yet to settle with the US Department of Justice around its pre-crisis residential mortgage-backed securities (RMBS) business.
Similar settlements agreed by others suggest a wide range of possible outcomes, but Napier is assuming an additional £2.5bn in provisions at the moment.
Despite that cloud hanging over it, the analyst thinks “RBS is outperforming its published restructuring plans” and upped his estimates as a result.
“The second quarter profit beat drives a 7% increase in our 2017 adj. EPS estimate; 2018-2019 numbers are broadly unchanged, 2020-2021 rises 9-10% for those with a longer-term view.”
Napier also increased his stock price to 265p (from 255p) to reflect the higher forecasts, but he still prefers RBS’ UK rivals Lloyds Banking Group PLC (LON:LBG) and Barclays PLC (LON:BARC) which he believes are “better valued”.
RBS shares were up 0.8% to 262.5p in late morning trade on Tuesday.