2 Reasons To Sell Royal Bank of Scotland Group plc Today

Royal Bank of Scotland Group plc (LON:RBS) is beginning to look very expensive, says Roland Head.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In recent years, UK banks have become unlikely fans of value investing, boasting of their net tangible asset value per share at every opportunity.

The biggest advocate of this approach has been Royal Bank of Scotland Group (LSE: RBS) (NYSE: RBS.US), probably because it has had little else to boast about. After all, since 2008, it has logged more than £30bn in losses, and has been 82%-owned by the government: not a very appealing proposition for investors.

Until recently, I’ve been a supporter of the asset-based investment case for RBS, but now that the bank is expected to return to profitability this year, I’m no longer convinced.

Should you invest £1,000 in Boohoo Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Boohoo Group made the list?

See the 6 stocks

It’s time to look at earnings

At the end of June, RBS’s tangible net asset value per share was 445p, which means that the bank’s shares currently trade at 84% of their tangible book value — a big discount for a FTSE 100 firm.

However, if you value RBS using its prospective earnings, it starts to look pretty expensive. Based on City analysts’ consensus forecasts, RBS has a 2013 forecast P/E of 20, and a 2014 P/E of 12.8. No dividend payment is expected before next year, at the earliest.

In my view, this valuation isn’t very appealing, given that Barclays also trades below tangible book value, has a forecast P/E of just 9.1, and offers a prospective yield of 2.4%.

Sell-off unlikely before 2015

The government has already started to sell its 38% stake in Lloyds Banking Group, but is not expected to start selling its stake in RBS before the next general election, in 2015.

This increases the risk that political interference will change the underlying investment case for RBS. The government already has a track record of interfering with the bank, and the Chancellor recently commissioned a review to look at whether RBS should be split into good and bad banks.

Whatever the outcome of the review, I wouldn’t bet against future political meddling — and it’s also possible that dividend payments won’t be allowed until the bank returns to private ownership, in order to keep voters happy.

Limited upside

RBS shares have risen by 110% since they hit a post-crisis low of 187p in November 2011. In my view, further gains could be a long time coming, and now could be the right time to sell and lock in profits, ahead of an uncertain future.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Roland does not own shares in any of the companies mentioned in this article.

More on Investing Articles

Investing Articles

Here’s why Tesla stock just rocketed 22.7%! Is it time to buy?

This writer wonders whether the news that sent Tesla stock soaring yesterday is a true gamechanger for the electric vehicle…

Read more »

Investing Articles

2 quality UK stocks to consider buying as share prices rally

With UK stocks moving higher, it might look as though investors with cash on hand have missed their chance. But…

Read more »

Investing Articles

How much £10,000 invested in Lloyds shares is forecast to be worth in 12 months

Harvey Jones is looking past today's stock market volatility to see where Lloyds shares may stand in a year's time.…

Read more »

Investing Articles

How Warren Buffett stays ahead of the stock market

When share prices fall, everyone suddenly wants to be like Warren Buffett. But what’s the secret to the Berkshire Hathaway…

Read more »

Investing Articles

Cheap UK dividend shares to consider buying right now

We're only just past the first quarter of 2025, but it already looks like the year could be another good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

What the heck is going on with the Barclays share price now?

The Barclays share price surged 25% as the market open on 10 April. Once again, the volatility’s been driven by…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Are Tesco shares a screaming buy after sinking to 9-month lows?

Tesco shares continue to experience price weakness as signs of mounting competition grow. But is it now too cheap to…

Read more »