Shares in Nat West (NWG) continued to sell off despite the bank reporting better than expected Q4 results. The early sell-off took the week’s losses to around 60p or 11% despite an ostensible improvement in the business.
| Share price: 588p (-1.2%) | PE: 9.2x |
| Market cap: £47.4bn | Yield: 5.4% |
Full house
For the quarter, NatWest posted net interest income of £3.44 billion, above the consensus of £3.33 billion. The net interest margin of 2.45% was also above the 2.39% average forecast.
Pre-tax profit of £1.94 billion was down 11% on Q4 2024 but comfortably ahead of the £1.72 billion forecast. For FY25, pre-tax profit was up 24% to £7.71 billion against a consensus forecast of £7.49 billion.
The bank’s Return on Tangible Equity, a key measure of profitability, climbed to 19.2% for FY25. That not only topped the FY24 return of 17.5% but was also well above the market’s 18.5% forecast.
Full-year EPS rose 27% to 68p, above the 65p consensus, and the total dividend jumped 51% to 32.5p per share. The bank said it would target a 50% payout ratio going forward and would consider share buybacks ‘as appropriate’.
‘2025 was another strong year for the group,’ commented CEO Paul Thwaite. ‘It is clear our strategy is working and we are delivering consistently, raising our ambition and sharpening our focus’.
NatWest delivered on all fronts as far as FY25 goes, but there are one or two questions over the outlook.
For this year, NatWest says it expects total income of £17.2 billion to £17.6 billion. Given the consensus is £17.5 billion, that could be seen as conservative or disappointing depending on your perspective.
Also, the bank is pointing to RoTE targets of above 17% for this year and above 18% for 2028. Given the consensus is for 18% for FY26 and 18.4% for FY28, again the question is, conservative or disappointing?
One thing we do like is the focus on dividends rather than buybacks. Income investors will be high-fiving themselves over the 50% hike and the commitment to a 50% payout ratio.
Read the press release here: https://investors.natwestgroup.com/
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