NatWest: Target Down, Share Price Up with FY23 Results; Cheap Even on Lower Outlook

Company Update (NWG LN) (Buy): Management expects ROTE to exceed 13% in 2026. We see a P/E of less than 8x and a Dividend Yield of 5%+.

(This article is for paid subscribers only. While we will continue to publish some free content, we had already published every article free for 9 months from April 2023 to January 2024.)

Highlights

• Shares rebounded 7% after results but remain below pre-COVID level

• Management expects ROTE to be 12% in 2024 and 13%+ in 2026

• At 0.8x TNAV, even a 10% ROTE implies 8x P/E, 5%+ Dividend Yield

• Operations were stable in Q4; U.K. government is gradually exiting

• With shares at 229.5p, we see 43% upside (14.6% annualized)

Introduction

NatWest released full-year 2023 results on Friday (February 16). Shares finished the day up 7.1%, but remain 19.0% down in the past year, and nearly 15% below the level at 2019 year-end, just before COVID-19:

NatWest Share Price (Last 5 Years)

Source: Google Finance (18-Feb-24).

We initiated our Buy rating on NatWest in February 2023 and added it to our “Select 15” model portfolio that same month. In the one year since our initiation, NatWest shares have lost 14.2% (after dividends).

NatWest continues to be a “value” stock, with an implied P/E of 8x or less and a Dividend Yield of 5%+, based on a current valuation of just 0.8x Price / Tangible Net Asset Value (“TNAV”) and our base case Return on Tangible Equity (“ROTE”) of 10%. Management has a higher 2026 ROTE target of 13%+, though this is a lower target than before.