Predicting Stronger Performance by Natwest above Sector Average, According to Analysts' Forecasts
Swanky Prognosis for NatWest: RBC Bumps Up Sector Rating and Profit Outlook
NatWest, the esteemed FTSE 100 banking giant, has caught the attention of RBC analysts who've given a thumbs-up with a "Sector Outperform" rating. This optimistic move follows NatWest's impressive first-quarter performance that surpassed expectations.
The analysts, Benjamin Toms and Pablo de la Torre Cuevas, have given NatWest's shares a boost by nudging the target price skyward from 465p to 475p, and upped the full-year profit before tax estimates from £6.2bn (2024) to £7.1bn.
Net interest income (NII) was the driving force behind this upgrading spree, remaining resilient despite waning interest rates. In fact, NatWest registered £3bn in NII, similar to the amount secured in the final quarter of 2024. The bank's net interest margin expanded eight basis points from the end of 2024 to an impressive 2.27%.
However, the Bank of England is scheduled to decide on interest rates again on May 8, prompting analysts to keep a watchful eye for further adjustments.
While retail banking bolstered the first-quarter results, the Commercial and Institutional division played a partial counterweight. NatWest saw a substantial increase in net loans due to homebuyers rushing to meet the Stamp Duty deadline on March 31. The Chancellor, Rachel Reeves, altered the zero rate thresholds for main residences, dropping from £250k to £125k, and first-time homebuyer thresholds from £425k to £300k.
NatWest to Dish Out £11.2bn to Shareholders by 2027
RBC foresees a bountiful future for NatWest shareholders, predicting a massive £16bn for the bank's 2025 income, rallying above NatWest's revised guidance of around £15.2bn to £15.7bn.
The analysts are bullish about NatWest's prospects, stating, "Natwest has had a strong start to 2025, and the bank’s structural hedge will provide additional momentum as we go through the year." They further suggest that deposits growth or loosening of ring-fencing regulations could present additional positive catalysts for the bank.
However, they cautiously note that the shares are trading 20% above the bank's tangible assets' anticipated value within a year, prompting them to see "more upside potential elsewhere amongst our UK banks coverage."
By 2027, NatWest is likely to return £11.2bn to its shareholders, with £7.5bn through dividends and £3.8bn through buybacks. It's expected that NatWest will re-emerge as a full privately-owned entity shortly, thanks to the government's recent reduction of its stake below the 2% mark. The taxpayer was previously the majority shareholder until March 2022, when the government sold a substantial chunk of shares, reducing its stake to 48.1%.
NatWest's analyst-backed optimistic future extends to various sectors, as RBC predicts £16bn income for the bank in 2025, which exceeds NatWest's revised guidance of £15.2bn to £15.7bn. This prosperous outlook is primarily driven by NatWest's involvement in finance, while investing in businesses could potentially provide additional momentum. Furthermore, the analysts suggest that NatWest's mortgage division, specifically homebuyers securing mortgages, contributed significantly to the bank's first-quarter performance.
