Can RBS Sustain Its Profitability In Q4?
Royal Bank of Scotland (NYSE:RBS) is scheduled to announce its fourth quarter and full-year 2018 results on Friday, February 15. The company turned profitable in 2017, and for the first time since 2008 delivered a net profit of £752 million for the year. After a solid performance in first three quarters of 2018, we expect the company’s profit to more than double to reach approximately £1.6 billion in 2018. This earnings increase is expected on the back of approximately 4.4% growth in revenue and a 1.5% decline in the bank’s operating expenses.
RBS’s stock price increased by more than 20% in 2017, and we have a price estimate of $8 for RBS’ stock which is almost 29% ahead of its current market price. We have created an interactive dashboard on What to expect from RBS’ Q4 earnings which outlines our forecasts for the bank. You can modify our forecasts to see the impact any changes would have on the its earnings and valuation, and see all of our Financial Services data here.
Revenue Expectations
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Net Interest Income and Net Fee & Commission Income constitute around 80% of RBS’s revenue, and are expected to fall by over 4% for 2018. However, the Other Income revenues stream is likely to jump by over 60% in 2018 and drive the bank’s overall revenue to £13.7 billion, an increase of approximately 4.5% from 2017. RBS is also aiming to buy back shares from the UK government by utilizing surplus capital, as the government plans fully to exit its ownership of RBS by 2024.
Brexit is likely to impact RBS’s operations, but since the company’s business is largely UK-focused, the impact on RBS may not be as significant as it will be on other banks. RBS had already planned for Brexit by charging an additional £100 million impairment charge in Q3 2018. We will be keeping an eye on management commentary to see what it has to say on the company’s outlook, especially relating to Brexit, future dividend policy and any further news on buying back shares from the Government.
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