LONDON — Taxpayer-backed Royal Bank of Scotland Group plc (ADR) (LON:RBS) is due to report its first-quarter results on Friday, the bank’s first update since announcing an incredible 6 billion-pound loss for 2012.
After surging 55% last year, Royal Bank of Scotland Group plc (ADR) (LON:RBS) shares rallied a further 10% during January, then crashed 27% by the end of March, only to recover 15% during April. You’d be forgiven for thinking this was a penny-share oil explorer rather than an 18 billion-pound bank.
While it might be un-Foolish to focus too much on share-price fluctuations, the wild price swings show how speculative and uncertain the bank’s future earning power appears from one month to the next.
With this in mind, what should we expect from this Friday’s results?
From the horse’s mouth
Here’s what chief executive Stephen Hester said within February’s full-year results:
Our target is for 2013 to be the last big year of restructuring. There will be important work still to do, but an increasingly sound base from which to work.
We expect the economic and regulatory challenges present in 2011 and 2012 to continue into 2013. Markets-related income is, as ever, difficult to forecast but we expect lower income in 2013 as a result of reduced balance sheet and associated restructuring.
The complexity of the bank’s restructuring — and lack of transparency in the sector generally — make it difficult to analyse earning power at Royal Bank of Scotland Group plc (ADR) (LON:RBS).
According to data from Capital IQ, analysts are completely divided, with 2013 full-year profit estimates ranging from 12 pence to 40 pence per share. For the first quarter alone, analysts are looking for profits anywhere between 100 million pounds and 800 million pounds, depending on your preferred adjustments. Revenue estimates for the quarter range from 5.8 billion pounds to 6.6 billion pounds.
Too speculative to analyse?
If highly regarded professional analysts are so divided over Royal Bank of Scotland Group plc (ADR) (LON:RBS)’s future earnings, is the business too speculative for us ordinary investors to invest in?
Well, banks have become far more complex over the years and, depending on your point of view, that lack of transparency could make modern banks impossible to analyse for many Foolish punters.
On the other hand, Royal Bank of Scotland Group plc (ADR) (LON:RBS) is currently valued at around half its stated book value, equivalent to one-third of the bank’s historical average rating. If an investor felt confident that RBS’s government-backing and importance to the U.K. economy makes the bank ‘too big to fail’, an argument could be made for a deep-value investment.
The bottom line
Whether you’re confident of the long-term story at RBS, or cannot bear the lack of transparency at modern banks, we’re brought back to the original question. What can we expect from RBS’s results this Friday, or even this year?
Where 2013 is concerned at least, judging by the lack of consensus, perhaps investors should continue to ‘expect anything’ in the short-term results. While the bank restructures, it might be impossible to say how RBS’s results will appear from one quarter to the next.
Evaluating the long-term future earning power of RBS, if possible at all, is surely the key to coming to a rational investment decision. This may be something you, personally, have to determine for yourself.
The article Do Tomorrow’s Results Matter for Royal Bank of Scotland originally appeared on Fool.com.
Mark does not own any share mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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