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FTSE heads for worst fall since June with Royal Bank of Scotland hit by sell note

Discussion in 'Market News' started by Lily, Sep 12, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Markets hit by worries about US rate rise and Clinton health

    Leading shares are heading for their biggest one day fall since the end of June, the aftermath of the Brexit vote, on a cocktail of concerns.

    Associated British Foods is the biggest loser so far, down 6.5% to £29.50 after the Primark and sugar business issued a disappointing trading update. It said Primark’s full year like for like sales were expected to be down 2% after unseasonable weather and the recent falls in sterling. The company’s pension scheme also reported a £200m deficit after being in surplus last year.

    After RBS’ participation in the recent sector rally, we downgrade to sell (from hold). Minor forecast changes take our target price to 200p (from 205p). Barclays (hold) is our preferred “recovery play” while Lloyds (buy) is our preferred FTSE100 bank. However, we continue to see far greater upside within the UK “challenger bank” sub-sector; we highlight OneSavings (buy), Shawbrook (buy) and Virgin Money (buy), while we think Aldermore (buy) is the most underappreciated, undervalued story of all. In this context, why own RBS?

    RBS trades on 0.7 times 2017 estimated total net asset value despite the fact that we expect it to remain loss-making with no dividend through 2016 and 2017. We see its path to recovery as distant and uncertain. We also make minor downgrades to reflect AT1/equity issuance and a £400m foreign exchange loss on a Preference Share redemption.

    A negative open comes as markets price in a higher probability that the US Fed will hike rates again next month. This comes after Boston Fed Governor Rosengren (FOMC voter) reiterated a hawkish message on Friday that served as the nail in the coffin for market concerns regarding global monetary policy divergence. This sealed a week-end sell-off for equities. Add to this questions being asked of the health of US Democratic Presidential nominee Hillary Clinton and a new layer of political event risk sees markets on the back foot into the new week.

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