NatWest's Efforts in Reshaping Its Business Is Bearing Fruit; Outlook Improves

For fourth-quarter 2021, no-moat NatWest reported profit before loan-loss impairments of GBP 294 million versus the GBP 472 million consensus estimate collected by the group itself prior to the release. The miss was almost entirely driven by higher-than-anticipated litigation and conduct costs, which can be lumpy and distort results. Cleaned of this, performance was good. NatWest has taken further steps in 2021 by improving its underlying business, increasing profitability, shedding low-return profile assets, and lowering its cost base. In tandem with the brightening outlook for the U.K. economy and raising rates blowing wind into NatWest’s sails, we expect the progress in profitability to continue through this and next year. We plan to update our model shortly with full-year 2021 figures and anticipate that our more bullish outlook on NatWest’s fundamentals will result in a fair value estimate increase beyond 10%.