Natwest to ‘outperform’ sector with bumper year, analysts predict
RBC analysts slapped a “Sector Outperform” rating on Natwest after the lender beat expectations in its first-quarter report.
The analysts upgraded full-year profit before tax estimates by three per cent to £7.1bn, compared to £6.2bn in 2024, and upped the stock’s target price to 475p from 465p.
They said the upgrades were driven by net interest income (NII), which remained resilient in the first-quarter amid waning interest rates.
The FTSE 100 lender booked £3bn in NII, in line with the amount secured in the final quarter of 2024. Its net interest margin – a key metric for a bank’s profitability from lending – expanded eight basis points from the end of 2024 to 2.27 per cent.
This comes after the Bank of England whittled interest rates down from a post-financial crisis high of 5.25 per cent to 4.5 per cent. The Monetary Policy Committee will decide whether to hold or cut rates again on May 8.
Analysts said the upgrade was driven by retail banking, partially offset by the Commercial and Institutional division.
The firm’s net loans increased £3.4bn in the quarter, boosted by a surge in retail banking mortgages as customers rushed to meet the Stamp Duty deadline on March 31.
Chancellor Rachel Reeves changed zero rate thresholds for main residences, which dropped from £250k to £125k with first-time homebuyer thresholds dropping from £425k to £300k.
Natwest to return £11.2bn to shareholders by 2027
RBC pencilled in £16bn for the bank’s 2025 income, sitting above Natwest’s revised guidance at the “upper end” of around £15.2bn to £15.7bn.
“Natwest has had a strong start to 2025, and the bank’s structural hedge will provide additional momentum as we go through the year,” Equity analysts Benjamin Toms and Pablo de la Torre Cuevas said.
“Significant growth in deposits or a softening of ring- fencing regulation could provide additional positive catalysts not yet reflected in consensus.”
But, they noted shares were trading 20 per cent more than the bank’s tangible assets were expected to be valued in a year’s time, leading to them seeing “more upside potential elsewhere amongst our UK banks coverage”.
Between 2025 and 2027, analysts anticipated £11.2bn of shareholder returns, with £7.5bn through dividends and £3.8bn through buybacks.
Natwest is hotly anticipated to re-enter full private ownership in the coming weeks after the government reduced its stake to below two per cent.
The taxpayer was still the majority shareholder in the company until March 2022, when the government sold a chunk of its shares,taking its stake to 48.1 per cent.