The Investment Column: Solid success from RBS

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The Investment Column: Solid success from RBS

BROAD-MINDED is not the word you would automatically associate with Royal Bank of Scotland (RBS), given the way it has handled its proposed takeover of Birmingham Midshires. RBS is doggedly refusing to let Midshires talk to Halifax, which has already put a higher offer for the building society on the table.

But a brief look at RBS's track record suggests the bank has proved to be far more flexible in its approach to acquisitions and new ventures than many of its peers.

RBS has made inroads in markets where many have feared to tread - the US and supermarket banking, for example. It has also resisted the irritating temptation to slap its brand name on every business it invests in. Its Direct Line brand is one of the best known UK insurance brands.

RBS's alliances and acquisitions have, on the whole, been good news for shareholders. The shares, although off recent highs, have more or less doubled in the last 12 months. They closed yesterday at 988p, up 54.5p on the back of a better than expected set of first half results.

In the six months to March, underlying pre-tax profits at the bank rose by 21 per cent to pounds 411m and the interim dividend was increased by 15 per cent to 7.13p a share. The figures were boosted by strong performances from the group's UK bank and from Citizens, its US subsidiary. Profits at the UK bank were up 25 per cent before provisions to pounds 461m. Citizens' profit rose 30 per cent to pounds 108m.

The results were not without a few wobbles, most notably the bank's Asian provisions. RBS has set aside pounds 53m this half, taking its total provisions for the region to pounds 60m. But that could rise again if the Asian economic crisis worsens.

Other weak points include news that account-holders at Virgin One, its joint venture with Richard Branson's empire, number less than 1,000, although RBS insists more applications are in the pipeline.

The coming year or so is likely to see RBS, which is keen to bolster its retail operations south of the border, dabbling in some type of acquisition activity, though deals are unlikely to be in the mega-bank league.

Like most banking stocks, RBS's shares are beginning to look a touch pricey - especially after yesterday's favourable market reaction. Analysts' forecasts now put the company on a forward p/e of 15. However RBS is undoubtedly a solid business with bright prospects. The shares are worth hanging on to for longer-term growth.

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