Berenberg has upped its target price for Royal Bank of Scotland Group PLC (LON:RBS) as it believes the group will supplement a 40% payout ratio with special dividends and share buy-backs when it returns to the dividend list.
The German bank reiterated a ‘buy’ rating on the FTSE 100-listed lender’s shares with an increased target price of 340p, up from 300p previously.
In mid-morning trading, RBS shares were changing hands at 278.8p each, down 3.8% on Friday’s close.
In a note to clients, Berenberg’s analysts noted that during the last year, RBS has settled £13bn of legacy issues, and they believe its recent settlement with the US Department of Justice marks the end of this period.
Moreover, the analysts added, RBS has continued to build capital during the resolution of these issues, meaning it has £5bn of excess capital, or around 40p per share, after dividends.
The analysts said they believe this can support material share buybacks, of up to 15% of today’s market value.
They forecast RBS paying a dividend per share of 15p for 2018 and 25p for 2019.
As a result, the Berenberg analysts said, they are sanguine about potential headwinds from share sales by the UK government, which reports today said could start selling down their current 70.5% holding in the bank as early as this week.