Laith Khalaf, head of investment analysis at AJ Bell, comments on the government’s continued sale of its stake in NatWest, including an offer for retail investors:
“The ‘Tell Sid’ campaign was iconic in its day, and for some will conjure memories of their first ever experience owning shares and taking a stake in UK plc by investing in British Gas when the business was privatised. The sale of some of the government’s NatWest stake to retail investors will probably strike a chord with some of the original Sids and Sidesses, seeing as its appeal probably lies with an older demographic with a focus on income rather than growth.
“NatWest is of course the artist formerly known as Royal Bank of Scotland, which was largely seen as a basket case when it was bailed out by the government during the financial crisis. In the intervening years it’s done a lot to repair its balance sheet through assets sales, and de-risked its business by re-focusing on traditional retail and commercial banking, albeit with a bit of investment banking on the side. Collectively we all already own a slice of NatWest thanks to the bailout, and the government’s exit from the shareholder register and a retail share sale will turn this arrangement from a mandatory stake for the many to a voluntary position for the few.
“Earnings growth from a company like NatWest isn’t likely to set the world on fire, especially when compared to the likes of Apple and Microsoft who are capitalising on the tech boom. The UK banking sector has been deeply unloved for years, and shares trade at lowly valuations. That does provide some upside potential for the share price should there be a positive reappraisal of the UK economy or the stock market, but that’s already been a long time coming. Probably more enticing for investors is the prospect of a 7% dividend yield which will help put bums on seats when the shares come to market. This yield will likely be boosted by a discount to the market price offered by the government. If there’s no discount, investors might as well buy shares on the open market.
“For those experienced investors accustomed to holding shares, this might be an opportunity to pick up a slice of a high street bank at an attractive price. NatWest is one of the 100 most bought investments by DIY investors on the AJ Bell platform so far this year, so it already has some cachet with private investors. For those who don’t invest today, a revival of the ‘Tell Sid’ message with public backing for retail investors to get involved in share investing, could be a nudge for them to consider doing so for the first time.
“We know that many people could and probably should be investing. Among those with £10,000 or more, the FCA’s research shows there are millions who could be investing but hold most of their money in cash*. A strong message from the government backing share investing is a step in the right direction, although much more could have been done in the Autumn Statement to encourage people to invest. While the sale of NatWest will likely raise the profile of share investing, more meaningful positive changes for investors could have come in the form of ISA simplification and cutting stamp duty on investment trust purchases.”
*https://www.fca.org.uk/publications/corporate-documents/consumer-investments-strategy-1-year-update Among consumers with £10,000 or more of investible assets, 58% (9.7 million UK adults) held the majority (75%+) or all of this in cash in 2022. Of these over two-fifths (4.2 million UK adults) said they had some appetite to take risk when investing.
