The key question for our two bailed-out banks has been when will they finally get back to profit.
For Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) it’s already been answered, after the bank posted a modest £415m pre-tax profit for the year just ended in December 2013 — and there are significantly better profits forecast for the next year or two.
Still waiting
But for Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) we’re not there yet — though 2014 should hopefully be the year. By this time next year, we should have heard of a pre-tax profit of around £3.8bn, with more than £4.6bn to follow in 2015 — if analysts’ forecasts are to be believed.
Whether those forecasts are worth anything is actually debatable, as investors have not responded to them with much enthusiasm — the share price is pretty much flat over the past 12 months, even though today’s 302p level puts the shares on a 2015 P/E of a fairly modest 11.5.
Pessimism all round
Part of the problem is that, even with profits finally back in sight, we still have a significant bunch of analysts urging us to sell RBS shares. In fact, 12 out of 28 have issued Sell recommendations, with only four apparently believing the shares are worth buying — the rest are sitting on the fence.
Another downer comes in the form of dividend forecasts, with a trifling 0.1% yield currently being forecast for December 2014 — and that only rises to 0.5% based on 2015 predictions. By comparison, the City is expecting a 2.1% yield from Lloyds this year, rising to 4.4% in 2015. That’s from shares on P/E valuations of only 10.3 and 9.3 for the two years respectively, so it’s easy to see why analysts and investors are favouring Lloyds right now — there’s a very big Buy contingent at Lloyds at the moment.
The trend is our enemy
The trends have been going in opposite directions at the two banks, too.
For Lloyds, 12 months ago the City experts were forecasting 2014 EPS of 5.5p with a 1p dividend — and a year on, those expectations have been beefed up to EPS of 7.3p with a 1.5p dividend.
But the opposite has been happening at Royal Bank of Scotland, with 32p EPS having been on the cards a year ago followed by a decline to 24p today. And the days when decent dividends are likely to be paid have been pushed back, too — over the year, we’ve seen a decline in the 2014 dividend forecast from 1.6p per share to just 0.4p now.
Not looking great
Whether that £3.8bn pre-tax profit forecast comes good remains to be seen — but even if it does, RBS still looks poor value compared to Lloyds.