Big Cap FTSE 100 Value: RBS

In screening the FTSE share index for value shares, there is one share that keeps on coming up and that is the Royal Bank of Scotland (RBS).

In recent years this stock has been cheap relative to its peers, yet still keeps on delivering double digit growth and double digit dividend increases. In the past months this already cheap share has taken a bit of a hammering following their multi billion pound bid for dutch bank ABN Amro. The market don’t like that and the share price has reacted as you would expect, to make matters worse the bank is competing against Barclays and the saga seems to be dragging on.

In terms of ratios, RBS is on a PE of around 8.4 and is yielding 5.5% (covered over 2 times). Cheap on two important measures, especially with the growth that this share has experienced in recent years. Comparing PE ratio with it’s peers, it is clearly good value as the banking sector average is 12.5 v’s RBS 8.5, clearly some scope for a re-rating.

In terms of the ABN Amro bid, RBS has an excellent track record of integrating is acquisitions and making them add value. I guess we’ll have to wait and see what happens there.

Finally, another point to note is that while we are waiting for this share to get re-rated there’s that healthy dividend to reward us.

All in all, I have bought some RBS and if any readers are looking for ideas then they won’t go far wrong with this pick.