Royal Bank of Scotland Group PLC’s (LON:RBS) third quarter was untidy with a number of one-off items but delivered a stable underlying performance, according to analysts at Barclays Capital.
Last week, RBS reported profit attributable to shareholders of £448mln for the third quarter to September 30, up from £392mln a year ago, missing the £502mln expected by analysts.
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Total income increased to £3.6bn from £3.2bn last year as growth in non-interest income offset a decline in net interest income (NII). The net interest margin (NIM) – a key measure of banks’ profitability – fell to 1.93% from 2.12% a year ago amid tough competition in mortgage lending.
“While net interest margin was a miss versus our expectations, we still expect rising rates to provide a tailwind for the major banks in contrast to the challenger space,” Barclays said.
Barclays repeated an ‘overweight’ rating -- the equivalent of a 'buy' recommendation -- on RBS with a target price of 340p, saying it sees “significant value in the stock”.
“Focus is on how quickly RBS can return surplus capital; we now factor special dividends in addition to directed buybacks,” Barclays said.
In August, the bank paid its first dividend in 10 years after drawing a line under the last of its major legacy issues by paying a US$49bn settlement with the US Department of Justice to end an investigation into the sale of mortgage-backed securities in the lead up to the financial crisis.
The lender paid an interim dividend of 2p per share.
In separate broker note, Deutsche Bank repeated a ‘buy’ rating but cut its target price to 300p from 318p.
The investment bank said the main focus of RBS’s results was on the decline in NIM and NII. Deutsche Bank noted that margins at Lloyds Banking Group PLC (LON:LLOY) and Barclays PLC (LON:BARC) in the third quarter were flat.
Shares in RBS rose 2.7% to 231p in morning trading.