Business Overview
Royal Bank of Scotland Group PLC (LON: RBS) is the United Kingdom’s fourth-largest banking group in terms of market capitalization. RBS operates in the banking and financial services domain and provides its services to customers in the UK and abroad markets. The company is into Personal Banking, Business Banking and Private Banking.

The company is arranging a special virtual shareholder event on 29 April 2020. On 1^st May 2020, the company will release its first quarter of 2020 results.

Update (as on 1^st April 2020)
Due to the uncertain scenario caused by the coronavirus outbreak, the group has decided to suspend dividend payments and share buybacks. RBS has also deferred decisions on further distributions falling in 2020. The Board has also decided to cancel both dividend payments in the financial year 2019, including special and final ordinary dividend. The management is confident and committed for generating capital returns, and plan to resume distributions to ordinary shareholders as the situation improves.

Financial Highlights for the Year Ended 31^st December 2019

(Source: Annual Report, Company Website)

Net interest margin reduced by 20 basis points reflecting a pressure in mortgage margin, as front book margins stay lower than back book margin and the book re-prices to the current rate. In the fiscal year 2019, the company’s operating profit increased to GBP 4,232 million as compared to GBP 3,359 million in the fiscal year 2018. Profit attributable to ordinary shareholders during the period increased to GBP 3,133 million against GBP 1,622 million in the same period last year. Bank net interest margin in FY2019 stood at 1.99 per cent. Basic earnings per share during the period was 26p as compared to 13.5p in the fiscal year 2018. Customer deposits rose by 3.4% or £5.0 billion, as progress continued across savings and current accounts. RWAs (risk-weighted assets) surged by 10.2%, mainly due to an increase linked to IFRS 16 changes, £0.7 billion, robust lending, £2.2 billion, and mortgage predictive loss adjustments, £0.6 billion. Return on tangible equity (ROTE) for 2019 stood at 9.4%. Maintained a CET1 ratio of 16.2 per cent after accruing 2.7 billion pounds of distributions to shareholders and a £0.4 billion post-tax charge in respect of foreseeable pension contributions.

Share Price Performance

Daily Chart as of April 16^th, 2020, before the market close (Source: Thomson Reuters)

Royal Bank of Scotland Group PLC’s shares were trading at GBX 104.40 at the time of writing before the market close (at 1.07 PM GMT) on 16^th April 2020, up by 0.096% versus the previous day closing price. Stock's 52 weeks High is GBX 265.00 and Low is GBX 101.15.

Valuation Methodology
 

Conclusion
Despite a challenging year, the group's performance in the fiscal year 2019 was encouraging. The company has attained another clear pass in the BoE’s stress test. This stress test would provide assurance that the company could maintain to assist the UK economy and its customers, even in the very challenging economic conditions. This also shows the progress of the company.

During the current uncertain market conditions, RBS was able to meet all its 2019 financial targets of cost reduction, net lending growth and dividend distributions to shareholders in 2019, while maintaining a CET1 ratio of 16.2%. Recent Coronavirus outbreak could affect the performance of the company.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 102.10 (as on 16^th April 2020 at 3:13 PM GMT) with lower double-digit upside potential based on 0.39x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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