NatWest: Down After FY22 Results, <10x P/E & 5% Dividend Yield

(Preview) Initiating Coverage (NWG LN) (Buy)

Summary

• NatWest Group plc shares are down 6.6% in London this morning after results, and currently have a P/E of 8.4x and a dividend yield of 4.7%.

• The stock is at 1.08x Tangible Book Value when NatWest expects 14-16% Return on Equity both in 2023 and the medium term.

• Net Interest Income is likely to be resilient, thanks to NatWest’s cheap deposits; Cost/Income Ratio should continue to improve.

• At 285.4p, we expect shares to deliver a 10%+ annualized return by 2025 year-end, even on undemanding assumptions. Buy.

• Potential credit losses in the event of a U.K. downturn represent the main risk. Returns can be much higher with benign macro.

Introduction

NatWest Group plc released their full-year 2022 results before markets opened this morning (Friday, 17 February). NWG shares fell sharply on opening and are down 6.6% in London as of 12:35 local time. (Lloyds Banking Group PLC (LYG), already Buy-rated in our coverage, also saw shares fall 3% in London this morning.)

At 285.4p, NatWest shares are c…