The long awaited results from Royal Bank of Scotland (RBS) are due out on Thursday, but the editorialising over bankers' bonuses has already started, with reports emerging on Wednesday that the part-nationalised lender is planning on giving out massive pay-outs to members of its investment banking division.
According to the City editor of Sky News, Mark Kleinman, RBS has agreed with the government to pay employees of the Global Banking and Markets (GBM) division between £390m and £400m in bonuses; that's in aggregate, not each ...
The numbers the investment analysts are interested in are those on the profit and loss table. Forecasts by analysts can be made to look daft by unforeseen non-cash adjustments but for what it is worth market consensus is for RBS to make £3.37bn in profit before tax on revenue of £27.0bn.
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The median value of the range of market forecasts should be treated with suspicion, however, as each analyst's forecast is likely to be based on a different interpretation of what the so-called "headline" or "underlying" figure is. This suspicion is strengthened by the fact that Nic Clarke, the banking analyst at broker Charles Stanley, is about a billion pounds off consensus with his RBS forecast and about £2.7bn north of consensus with his Lloyds prediction.
As Clarke points out, RBS's third quarter profits were distorted by non-operating items such as a charge for movements in the fair value of own debt of £2,357m, compared to a gain of £339m in the second quarter. On an operating profit basis RBS reported a profit of £2,198m in the first nine months of 2011, compared to £1,858m in the same period in 2010.
Credit Suisse, meanwhile, reckons the restructuring of the GBM division is key. "The January 12th announcement was light in terms of detail [on the GBM restructuring], with targeted RWA [risk weighted assets] reduction not compatible with the reduction in businesses outlined. Depending on how management present and additional detail provided, this could drive further near term performance. We think the market is underestimating the costs of deleveraging and restructuring. Further we reiterate our view that this is a first step on a necessary path to reduce future capital needs and simplify the business," the Swiss bank opined.
"We will look for continued execution in what was a tough environment in Q4 [fourth quarter]. We expect Q4 non-core assets to reduce by 2.3bn to 115.4bn. We could also get news on the APS [asset protection scheme] and sale process insurance," Credit Suisse added.
Royal Bank of Scotland is not the only Footsie company declaring results on Thursday but the likes of RSA, BATs, Capita and Centrica will struggle to wrest the headlines away from the storied bank.
Insurer RSA is tipped to declare profit before tax of £719.2m on revenue of £8,272m, The already generous dividend yield is expected to be boosted by a full year dividend of 9.32p, up from 8.82p in respect of 2010.
Credit Suisse thinks the results will be solid but with mixed messages for the future. "We forecast RSA to report FY11 EPS [fiscal 2011 earnings per share] of 14.0p, up 41% YoY [year-on-year]. We expect a pre-tax insurance result of £984m (+27% YoY) underpinned by strong gains in underwriting profit (via lower catastrophe losses). Investment income should also grow (£569m forecast) with expansion of float and strong harvested investment gains offsetting lower bond yields," Credit Suisse said.
"On the positive side, we expect strong growth in [recent acquisition] GWP to continue (+9% forecast) while improvements in accident year results should underpin a sub-95% combined ratio. However, we expect the result will also demonstrate evidence of a gradual decline in investment yields (excluding gains) and a fading effect of reserve releases which have been at elevated levels in recent results," Credit Suisse said.
Pre-tax profit from British American Tobacco (BATs) for 2011 is set to burst through the five billion pounds barrier, with investment analysts forecasting a figure of £5.5bn on sales of £15.5bn. The full year dividend could be ramped up to 125.77p, the investment analyst community reckons.
Outsourcing giant Capita is forecast to declare revenue of £3.25bn and pre-tax profits of £413.8m. The full year dividend is predicted to rise to 24.1p from 20p the year before.
Charles Stanley's Tony Shepard notes that the 14% gain in top line growth which the broker is forecasting will have been driven by acquisitions; underlying revenue is expected to decline by 7% "in line with the first half performance."
"Overall, the profit margin is expected to be similar to last year's 14.4% which is held back by a combination of acquisitions such as Ventura, some group restructuring costs and investment in the new Polish facility," Shepard adds.
Utility Centrica, which trades under the British Gas brand, is expected to announce a decline in both turnover and pre-tax profits for 2011. Market consensus for the former is £21.85bn and for the latter is £2.17bn.
INTERIMS
Ashmore Group, Centaur Media, Go-Ahead Group, Kier Group, Oil & Gas Development Company Ltd. GDR (Reg S), Redrow, Sinclair Is Pharma
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Merchants Trust
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Bloomberg Consumer Confidence (US) (14:45)
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Hellenic Telecom Industries SA ADS, Lancashire Holdings, Wentworth Resources Ltd
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