Aided by solid CIB revenues and a resilient international retail performance, Societe Generale SA (ADR) (OTCMKTS:SCGLY) (EPS:GLE) posted solid results in 2Q14, notes Jefferies.

Societe Generale SocGen
SocGen

Omar Fall of Jefferies in the research note dated August 1, 2014 assigned ‘Hold’ rating on SocGen and pegged target price at €44.60.

SocGen – Solid show by Societe Generale

The Jefferies analyst points out Societe Generale SA (ADR) (OTCMKTS:SCGLY) (EPS:GLE)’s headline net income of €1,030m compares to consensus of €863m. By excluding exceptionals such as litigation and Newedge acquisition gain, the beat was 14% at the pre-tax profit level.

France’s second-largest bank by market value also posted strong CIB and asset gathering results, with a pre-tax profit beat of 22% as against consensus. FICC revenues were strong, up 9% year-on-year, though the group missed in equities, showing a modest 3% year-on-year growth due to low volatility. The Jefferies analyst compliments Societe Generale’s performance as these markets numbers are better than peers.

The analyst also highlights that Societe Generale SA (ADR) (OTCMKTS:SCGLY) (EPS:GLE)’s PTP beat consensus by 28%, thanks to Cost of risk 22% better than consensus. The analyst notes Russia and Romania were both profitable, which should alleviate concerns and shows the last two quarters had an element of kitchen sinking.

However, the Jefferies analyst notes the only negative in the second quarter results of Societe Generale is French retail where the French bank’s PTP missed consensus by 4%, thanks to weakness in fee and commission income. The analyst points out that Societe Generale’s capital is fine with CET1 of 10.2% and in-line with expectation.

RBS downgraded to “Sell

Ian Gordon of Investec in the research report dated August 1, 2014 downgraded Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) (AMS:RBS) from Hold to Sell, as the analyst continues to forecast negative earnings through Q3/Q4.

The analyst points out that Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS)’s pre-released better-than-expected Q22014 results a week ago sparked wide euphoria and a 11% 1-day spike. The analyst notes the market sentiment has got ahead of financial reality.

As can be deduced from the following graph, the analyst anticipate tNAV per share of RBS to decline to 370p in H2 2014e and 367p in 2015e.

RBS tNAV SocGen

The following graph highlights six years of heavy Attributable Losses between 2008-2013. The Investec analyst anticipates a very slow recovery through 2014-2018e for RBS. With the share count increasing ten-fold since 2007, the analyst believes RoE > CoE remains merely a 2018-2020e aspiration:

 RBS P&L attributable to shareholders

The following graph sets out the income statement 2008-2017e marking lower income, lower costs, lower impairments, lower net negative one-offs:

 Group income statement

Accordingly, the Investec analyst downgrades Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) from Hold to Sell, while raising RoE-g/CoE-g derived target price from 325p to 340p.