RBS climbs as analysts see end of lost decade

The FTSE 100 hit another record high on Friday with Royal Bank of Scotland among the gainers after Natixis analysts saw its lost decade coming to an end.

“The investment thesis for RBS is reaching a turning point,” Natixis told clients. “The time is near when the longstanding strengths of the core bank will outweigh the material drag of legacy items.”

RBS management has earned a reputation for plain speaking, so its target next year to post its first statutory profit in a decade should be taken seriously, Natixis said.

With legacy issues such as litigation falling away, the strength of the core franchise means it can also restart dividends while it works to reach a “normalised state” by 2020, Natixis said. And with the UK government owning 71.3 per cent of RBS shares, a majority of investors are by definition underweight, the broker argued.

“RBS has line of sight into successfully emerging from its protracted restructuring phase in 2018 and that when it does emerge, it will do so pregnant with significant capital distribution potential.”

Natixis upgraded RBS from “reduce” to “buy” on a target of 289p. The stock added 1.4 per cent to 243.9p.

A mixed wider market boosted the FTSE 100 by 9.01 points to 7,424.96.

Insurers were in demand, helped by rumours that Swiss Re has been examining potential UK acquisitions.

FTSE’s large-cap insurance indices rose to around their best levels since 2001 and Prudential hit a record high, up 0.4 per cent to £17.61.

Car insurer Admiral, which in the wake of last year’s retirement of founder Henry Engelhardt has been the subject of vague bid speculation, rose 1.9 per cent to £19.45 to lead the FTSE 100 risers.

Dealers noted that Admiral’s longstanding coinsurance deal with Munich Re, its 10 per cent shareholder, is due to run until the end of 2018.

Tullow Oil dropped 14.7 per cent to 202.3p after launching a rights issue to shore up its balance sheet.

Weir Group, the pumpmaker, rose 3.3 per cent to £19.37 after Barclays turned positive as part of a sector review.

“The green shoots in mining capital expenditure are starting to emerge after a four-year downturn,” said Barclays, which estimated that global miners have raised capex budgets by 19 per cent so far this year.

On Weir, Barclays saw “the investment case gradually shifting to minerals after a near-exclusive focus on oil and gas in the past two years and believe the recovery potential in here is under-appreciated in current consensus estimates and, indeed, in company guidance”.

Hochschild Mining slipped 8.1 per cent to 267.7p after chairman Eduardo Hochschild cut his stake in the Peruvian silver miner to 51 per cent.