NatWest: 0.7x TNAV, 8.7% Dividend Yield after Q3 Results

Company Update (NWG LN) (Buy)

Highlights

• Shares have fallen 14% since results, largely on NIM fears

• ROTE was 14.7% in Q3, but down from ~20% peak at Q1

• Deposits starting to stabilize, structural hedge tailwind will grow

• Stock is cheap even with a 10% ROTE, vs. 14-16% targeted

• With shares at 178.2p, we see 64% upside (18.2% annualized)

Introduction

NatWest released Q3 2023 results last Friday (October 27); shares fell 11.6% that day and have fallen by a further 2% since, taking them to their lowest level since January 2021:

NatWest Share Price (Last 5 Years)

Source: Google Finance (01-Nov-23).

NatWest shares have now lost 32.1% (net of dividends) since we initiated our Buy rating in February 2023, mirroring losses at other large U.K. and U.S. banks including Lloyds (down 21%) and Bank of America (down 25%).

NatWest is a classic “value” stock, trading at just 0.66x Tangible Net Asset Value (“TNAV”) and, assuming a long-term average Return on Tangible Equity (“ROTE”) of 10%, a P/E of only 6.6x. The current Dividend Yield is 8.7…