Woodkirk Stone
WITH With NatWest’s operating profit for the first nine months of 2021 standing at £3.6bn, the banking group should be on track to post one of its few annual profits since 2008, when NatWest Group (NWG) publishes its annual results on Friday February 18. .
The impact of the pandemic on ‘normal’ business, which has derailed usual levels of lending and borrowing and seen customer balances increase, means that all UK banks currently have plenty of cash; and none more than NatWest with some £80bn of excess capital.
The Bank of England’s 2020 dividend ban has put payouts out, but with NatWest committed to paying 3.27% of its current market capitalization, around £1bn a year will be returned to shareholders in the form of ordinary and special dividends for the next three years. . This should increase both investor income and NatWest’s share price.
NatWest shares have already more than doubled to 254p since March 2020, when the impact of Covid on Britain’s biggest business lender hit home, but analysts at broker Berenberg have just raised their target even higher high, from 250p to 300p – close to where NatWest shares were four years ago. They believe that NatWest is the banking industry’s “biggest short-term beneficiary” of rising UK interest rates. Remember that past performance is not a reliable indicator of future returns.
On Friday, you can expect a lot of attention on NatWest’s net interest margin; the difference between the interest it pays on deposits and what it receives on loans and the like. At the end of September, it trailed the rest of the sector with a margin of 1.54%.
However, with a potential economic recovery on the cards and the prospect of a few more interest rate hikes to come, NatWest will be in line to attract even more savings, and with it the reverse offer – loans at rates far exceeding any potential interest rate hike by the Bank of England – adding to its profit potential. And potentially a return to the 2.06% net interest margin it was on a year ago.
Broker Deutsche Bank describes NatWest as the most rate-sensitive UK bank, thanks to its £80bn of excess capital, and offers the highest potential return. He says his price-earnings ratio of 12.45 is at the top, but so is his dividend yield of 2.4%.
Add also the fact that the government is set to reduce its stake in the bank to 50%, loosening the grip it has had on the bank since the 2008 financial crisis, and the dampening effect that the constant trickle of ‘Treasury shares NatWest has had on NatWest’s share price, may be counteracted by an air of renewed optimism about the future.
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