Right now I’m comparing some of the most popular companies in the FTSE 100 with their sector peers in an attempt to establish which one is the more attractive investment.
Today I’m looking at Royal Bank of Scotland (LSE:RBS) (NYSE: RBS.US).
Valuation
Now, I believe that as RBS’s largest peers, Standard Chartered and HSBC generate the majority of their income outside of the UK, they are not a suitable comparison. So, for the purpose of this article I will be comparing RBS to its closest high-street banking peers, Lloyds and Barclays.
Still, as RBS is not currently expected to return to profit until 2014, I am unable to calculate many of the ratios I usually use to compare the company to its peers. However, some figures are available for 2014, when City analysts predict that RBS will earn 26.4p per share implying that RBS is currently trading at a forward P/E of 12.5.
In comparison, for the same period, Barclays is slated to earn 29.7p per share and Lloyds is forecast to earn 6.8p per share. All in all, this means that at current prices Barclays and Lloyds are trading at a 2014 P/E of 8.4 and 11 respectively, which makes RBS look expensive at current prices.Â
Company’s performance
Unfortunately, RBS’ performance during the past five years has been poor to say the least. Nonetheless, according to some estimates, after the bank returns to profit during 2014, RBS is expect to nearly double its earnings between 2014 and 2015. That said, I would be wary of these forecasts as a lot can happen during the next two years.
Whatever the case, RBS’ current forecasts predict that the bank will seriously under-perform both Lloyds and Barclays during the next two years. Indeed, Lloyds’ earnings per share are expected to expand 30% during 2014 alone and Barclays is currently expected to report pre-tax profit growth of 25% for the same period.
Dividends
Furthermore, RBS’ dividend payout is also expected to lag that its peers during the next few years. In particular, City analysts expect that RBS will pay its first dividend since 2008 next year. However, analysts only expect the bank to offer investors a token payout of 1.3p. This would be an annualized dividend yield of 0.4%.
Unfortunately, once again this payout will lag that of both Barclays and Lloyds, which are expected to support a dividend yield of 4.2% and 3% respectively for the same period.Â
Foolish summary
All in all, I feel that RBS is a much weaker share than its peers.Â