Investec has reiterated its 'buy' recommendation for part-nationalised lender Royal Bank of Scotland after the group's in-line first-half results, saying that it expects a recovery in profitability from next year onwards.
"It's not all bad. While MPs and regulators focus their energies on sound-bites and gesture-politics, RBS management continues to make useful progress in terms of balance sheet repair," said analyst Ian Gordon.
Revenues of £6.4bn were in line with forecasts, insurance claims of £0.6bn were £0.1bn better, while costs of £3.9bn were £0.2bn worse on the back of one-offs and impairments. Meanwhile, the bank took a £135m PPI top-up, but the broker says that "encouragingly", net exceptionals fell sharply.
Rumours were doing the rounds on Thursday that the government is considering buying up the remaining shares that it does not already own in an effort to kick-start lending to businesses.
However, Gordon said that RBS is "more than capable of responding to any uptick in credit-worthy demand for finance," saying that it "remains a mystery as to why nationalisation might be considered practical or desirable.
"In the 1930s, the Kulaks chose to kill their own cows rather than hand them over to Stalin, and agricultural output fell by 87% as control of production was transferred to the hated collective farms - a salutary reminder for meddling UK politicians today," he said.
Currently, the stock is trading at 0.4 times tangible net asset value (tNAV) of 489p. Gordon said: "It will remain loss-making in 2012e for a fifth consecutive year, but thereafter we expect a slow recovery in profitability, with return on equity rising to c7% in 2015E."
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