Natwest Share News (NWG)

(Alliance News) - Bank of America thinks the strong results from NatWest Group PLC on Friday and the UK bank's increased guidance should spark further gains in its share price.

NatWest, an Edinburgh-based lender, pointed to positive momentum across its business as it lifted its annual outlook and also announced a deal to buy a mortgage portfolio from Metro Bank Holdings PLC.

In response, shares in NatWest jumped 6.6% to 360.50 pence in London on Friday afternoon. It was the best performing stock in the FTSE 100 index, which itself was up 0.8%.

Metro Bank shares meanwhile climbed 1.3% to 38.35p.

NatWest reported total income of GBP7.13 billion for the first-half of 2024, down 7.7% on-year from GBP7.73 billion. Net interest income dropped 5.6% to GBP5.41 billion from 5.73 billion. Pretax profit declined 16% to GBP3.03 billion from GBP3.59 billion.

In the second-quarter, total income fell 5.0% annually to GBP3.66 billion, but beat company-compiled consensus of GBP3.41 billion. Pretax profit, which declined 14% to GBP1.70 billion, beat consensus of GBP1.26 billion.

Impairment charges fell to GBP48 million from GBP223 million.

Net interest margin of 2.10% was 5 basis points higher than the first quarter primarily due to improved deposit margins, the firm said. But it was down from 2.23% from a year prior.

The CET1 capital ratio was little changed at 13.6% at the end of the second quarter compared with 13.5% in the previous three months.

NatWest raised its interim dividend by 9.1% to 6.0 pence per share from 5.5p.

Chief Executive Paul Thwaite pointed to growth across the business.

"We have attracted over 200,000 new customers and our acquisition from Sainsbury's Bank is expected to add around one million customer accounts on completion," he noted.

He hailed "positive momentum and progress in the first half", and said customers are "beginning to feel more confident, with activity increasing and asset quality remaining strong."

Looking ahead, NatWest now expects to achieve a return on tangible equity above 14%, its outlook raised from "around 12%".

Income excluding notable items to be around GBP14.0 billion, ahead of its previous forecast in the range of GBP13.0 billion to GBP13.5 billion.

NatWest said the deal with Metro Bank will see it acquire up a GBP2.5 billion portfolio of prime UK residential mortgages, with a weighted average current loan to value of around 62%.

Metro said it had agreed to sell the mortgage book to NatWest for GBP2.4 billion in cash.

CEO Thwaite said the deal would see NatWest welcome around 10,000 customers to the bank.

"The combination of a high quality [second quarter] earnings beat, guidance upgraded ahead of consensus and what we consider conservative unchanged medium term targets should support continued stock outperformance," analysts at BofA said.

"These results reinforce our view that NatWest is an undervalued...business," they said.

BofA said NatWest delivered some "big headline outperformance" to market consensus with attributable profit 40% ahead, dividend per share a 13% beat, and a CET1 ratio 50 basis points above consensus.

The analysts noted revenue strength across NatWest divisions ,including 5 basis points in quarter-on-quarter margin expansion and balance sheet growth, as well as ongoing strength in Corporate & Institutional fees.

BofA expects further net interest income growth for NatWest - even with two interest rate cuts by the Bank of England expected in the second half of 2024 - from continued margin expansion and balance sheet growth, while NatWest's guidance allows for some softening in non-interest income.

BofA increased its 2024 attributable profit forecast for NatWest by 14% to GBP3.89 billion from GBP3.42 billion.

BofA reiterated a 'buy' rating on NatWest with a 380p share price target.

By Jeremy Cutler, Alliance News reporter

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