NatWest Shares Rise After Results Beat Despite Mixed Outlook — Update

By Elena Vardon

NatWest shares rose after the British lender posted a fourth-quarter print that beat expectations, but said it expects income to decline this year as higher interest rates--which boosted its top line in 2023--start to taper off.

At 1008 GMT, shares in London traded around 5% higher at 225 pence, after opening in the red as the market digested the mixed outlook and investors warmed up to the quarterly figures.

The bank said it sees total income excluding notable items in 2024 coming in between 13.0 billion and 13.5 billion pounds ($16.38 billion-$17.01 billion), below estimates taken from a company-compiled consensus which see GBP13.765 billion.

While rebasing its expectations to adapt to an environment of anticipated falling interest rates, NatWest's guidance was initially met with disappointment by the market with analysts seeing the view as conservative.

This follows bumper revenue of GBP14.75 billion in 2023 driven by interest income, which surpassed expectations of GBP14.60 billion. Higher rates, lending growth and a larger contribution from its markets business offset lower deposit balances and pressure on margins in the year, NatWest said.

In terms of net interest margin--the difference between what lenders earn on loans and pay out on deposits--the group didn't mention its expectations for the year ahead, which frustrated analysts who closely watch the metric's trajectory. For 2023, it posted a bank net interest margin of 3.04% in line with views, with a continuing declining margin at 2.86% for the last three months of the year.

For the quarter ended Dec. 31, the group reported total income of GBP3.54 billion, ahead of the GBP3.38 billion forecast by analysts. Net interest income slipped compared with the previous quarter to GBP2.64 billion against consensus' expected GBP2.59 billion. Pretax profit for the quarter was GBP1.26 billion, beating estimates of GBP1.02 billion.

The bank also guided for a return on tangible equity--a key measure of profitability--of around 12% for 2024, after reporting 17.8% for 2023, and sees this at more than 13% for 2026. The guidance is below its previous mid-term 13% to 14% target, likely providing the market with another source of disappointment. "Consensus is largely there, so the downgrade has a bit of a 'kitchen sink' feel to it," RBC Capital Markets said in a note to clients.

NatWest's common equity Tier 1 ratio--a key measure of balance-sheet strength--stood at 13.4% at Dec. 31, in line with expectations.

The lender--in which the U.K. government has a 35% stake--added that it would launch an on-market GBP300 million share buyback in 2024. It proposed a final dividend of 11.5 pence a share, bringing the full-year payout to 17.0 pence.

"Better-than-expected profitability and distributions to shareholders are fine but any optimism was tempered by news medium-term returns targets have been watered down," AJ Bell wrote, pointing to the share price reaction.

The appointment of Interim Chief Executive Paul Thwaite as permanent boss, which was outlined alongside the results on Friday, removes a key uncertainty for the group as it provides continuity, according to analysts. The confirmation points to stable leadership and could open the door to the retail share offer that the Treasury is exploring to sell down its stake in the bank later in the year.

"The government holding... has been an overhang on the shares for some considerable time and its sale would leave the bank free of these shackles," Interactive Investor said, adding that the results increase the appeal to retail investors.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

February 16, 2024 05:29 ET (10:29 GMT)

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