Broker tips: RBS, Royal Dutch Shell

ShoreCap stuck to a 'hold' recommendation for shares of RBS following the lender's 'in-line' first quarter figures, pointing to the yet unresolved outcome of the US Department of Justice's investigation into alleged historical mis-selling of residential mortgage-backed securities in the States.

That, after all, remained a key driver of the investment case for RBS, ShoreCap's Graeme Kyle said.

"While underlying operating performance is improving, the outlook continues to be overshadowed by the impending US RMBS settlement with the DOJ for which the timescale is out of the group's control," Graeme said in a research report sent to clients.

"Note that our dividend forecasts is predicated on the US RMBS settlement being resolved in the current financial year," he added.

Indeed, the 'tail risk' associated with the risk of future misconduct redress and litigation costs translated into a 20% haircut for on the broker's fair value estimate for the shares, then at 265p.

"We will await the resolution of the US RMBS settlement before deciding whether it is appropriate to take a more active stance on the shares and retain our current preferences for Lloyds."

Analysts at Credit Suisse revised their target price for oil major Royal Dutch Shell higher, citing recent changes to their macro forecasts, at the same time that they highlighted the existence of several key positives for the shares.

However, they continued to see a need for further deleveraging, also pointing out that it was over-resourced in some areas.

Chief among the positive aspects highlighted by the Swiss broker was the oil major's shift towards a less capital-intensive version of its former self with more scale and "scope around key focus areas", which had allowed it to de-risk its dividend.

In a research note sent to clients, Thomas Adolff, Ilkin Karimli and Yaroslav Rumyantsev also pointed to the power of Shell's integrated value chain in Downstream, its good mix of opportunities across different themes and its technology innovation.

However, its cash conversion during the second quarter was labeled as "suboptimal" - for a second month in a row - although the Swiss broker conceded that was largely the result of non-recurring items.

To take note of as well, the investment bank also said that further deleveraging was required before the company's share buyback plans could go ahead.

Credit Suisse revised its target price for the shares from 2,750p to 2,850p, reiterating an 'outperform' recommendation.