- Fourth-quarter and full-year earnings for 2024 higher than expected
- Dividend increase also higher than forecast
- Shares dip after strong run, but still trade at highest level since 2011
“Full-year profits and the dividend for 2024 were both higher than expected at NatWest and, rather like Barclays, the bank is earning and paying its way back into investors’ affections after an awfully long time in the post-financial crisis wilderness,” says AJ Bell investment director Russ Mould.
“The shares are still a stunningly long way below their pre-crisis peaks but the government’s average bail-in price of around 500p a share from 2008 is getting closer and closer, thanks to solid earnings, no sudden jump in costs for bad loans or conduct and a balance sheet that meets regulatory capital requirements.
Source: LSEG Refinitiv data
“The way in which NatWest has slowly nursed itself back to health can be seen in the steady increase in tangible net asset, or book, value per share at the bank.
Source: Company accounts
“Investors’ faith in this steady recovery can be seen in how they are now prepared to pay a premium to net asset value on the shares, having spent the post-2008 period paying a discount, to reflect their scepticism about the official valuation of the assets and whether NatWest could make a decent return on them.
“Indeed, NatWest is now the most-highly valued of the FTSE 100’s Big Five banks, on the basis of the price-to-book, or price-to-NAV multiple.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts, LSEG Refinitiv data. Price/book based on Q4 2024 NAV for Barclays and NatWest and Q3 for Lloyds, HSBC and Standard Chartered.
“A return on tangible equity of 17.5% in 2024, and targets of 15% and more for 2025 and 2026 confound concerns over the bank’s earnings power and efficiency, while the growth in NAV should ease concerns over the quality of the assets.
“This is all at a time when the bank is not getting an awful lot of help from the UK economy, although interest rates staying higher for longer than expected does seem to be aiding NatWest’s net interest margin and net interest income.
Source: Company accounts, company investor relations website, analysts' consensus forecasts
“At least NatWest is doing its bit by staying out of trouble with regulators and managing its loan book in a disciplined way. Even after an increase in the fourth quarter, total conduct costs came to just £295 million in 2024, the second-lowest figure in the past fifteen years, while write-downs against sour loans were also very subdued at just £295 million. The days when restructuring costs, loan losses and regulatory penalties used to gobble up large chunks of annual profits seem to be long gone.
Source: Company accounts
“Analysts believe that the bank will continue to keep its nose clean going forward, as their profit forecasts for 2025 and 2026 assume that conduct costs will stay around £250 million a year. However, loan impairments are seen rising sharply to around £1 billion in this year and next. This is one reason why overall pre-tax profit is expected to come in around £6.2 billion for the third year in a row in 2025.
Source: Company accounts, Marketscreener, analysts' consensus forecasts
“However, better times are seen after that, as the UK gets some economic traction, and the current lack of profit growth is hardly holding back the shares, thanks to the generous cash returns offered to shareholders.
“A full-year dividend of 21.5p a share for 2024 handily exceeds the consensus forecast of 19.5p and also analysts’ expectation for 2025 of 20.8p a share. Chief executive Paul Thwaite and the board are also expected to sanction £1.4 billion of share buybacks in both 2025 and 2026.
“Add together the £1.7 billion dividend payment and 2024’s £2.7 billion buyback and NatWest returned £4.4 billion to shareholders, the equivalent of 12% of its £35 billion market cap. Such a total cash yield easily beats inflation and the available returns on government bonds and cash, so income hunters may continue to warm to NatWest, and the banks more widely, if such largesse can be maintained.”
Source: Company accounts, Marketscreener, analysts' consensus forecasts, LSEG Refinitiv data
