Royal Bank of Scotland and Premier Foods

Friday, February 15, 2019 - 09:44

“Frustrations over the pace of US/China trade talks have weighed on markets with the FTSE 100 dipping 0.1% as the week comes to a close. Markets elsewhere in Europe and Asia were also weak. “Negative sentiment concerning trade issues will almost certainly cast a dark cloud over the natural resources industry and so it is that London-listed miners and oil stocks are the main contributors to the FTSE’s negative performance on Friday,” says Russ Mould, Investment Director at AJ Bell.

Royal Bank of Scotland

“For the first time since the financial crisis Royal Bank of Scotland is feeling sufficiently confident to pay a special dividend.

“This feels like a significant moment given there would have been times in the last decade or so when shareholders would have welcomed an ordinary dividend let alone anything on top.

“Today’s results saw the company beat expectations across several metrics and post a second consecutive year of profit. However, the main driver was lower impairments and a reduction in costs.

“While RBS looks like it is out of the emergency room, there remain question marks over just how healthy the underlying business is. Here the outlook looks somewhat less positive.

“Competition in the mortgage market means profit margins remain very tight and the company believes achieving its 2020 cost saving target will be a stretch given costs associated with Brexit.

“The 62.4% of the bank still owned by taxpayers represents a big obstacle to a return to normality for RBS. The prospect of further share sales by the Treasury could weigh on the share price, notwithstanding the bank’s recently announced plans to buy back shares from the Government itself.”

Premier Foods

“Failure to sell Ambrosia leaves Premier Foods in a sticky mess. Reports that the business could fetch more than £100 million had raised hopes that Premier Foods would get a much-needed cash injection to help reduce its significant debts and have money to reinvest in the best-performing parts of the business.

“Being stuck with the custard maker now means Premier Foods may have to look elsewhere in its cupboard to see if there is anything of value to offload.

“There may be a temptation to sell some of the strongest brands in its portfolio to get a financial lifeline, yet that could damage the business longer term if it gets rid of something that has been central to the company’s success.

“Companies don’t want to get rid of their crown jewels but sometimes they think too short-term in nature and are guided by quick gains and, by doing so, lose long-term benefits should they have kept their best assets.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.