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NatWest Group PLC NWG

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NatWest Group Reports Good First Quarter; Restructuring Progress Promising

Niklas Kammer, CFA Equity Analyst

Analyst Note

| Niklas Kammer, CFA |

Our fair value estimate for NatWest Group remains GBX 230 per share after the U.K. bank reported a good first quarter helped by loan-loss impairment releases. Compared with the last quarter of 2020, NatWest showed 5% growth in income driven by higher noninterest income more than offsetting marginally weaker net interest income. Net interest margins were almost flat, as a slight improvement in mortgage margins nearly offset the structural hedge headwind. We think more important to NatWest’s story, however, is the good performance in operating expenses. The group achieved a reduction of slightly above 4% in its cost base relative to the first quarter of last year, showing further progress of its restructuring plan. Loan-loss impairments were a credit to the income statement, worth GBP 102 million this quarter, as the group released provisions in the commercial banking segment no longer believed to be at imminent risk of default. To sum up, this performance resulted in a flattering 8% return on tangible equity, which does not reflect NatWest’s current true underlying profitability, but we believe the group is moving in the right direction. At its current valuation, we still see roughly 17% upside in NatWest shares and expect this gap will close as the group continues executing its strategy.

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Company Profile

Business Description

NatWest Group is a universal bank headquartered in the United Kingdom, where it derives around 90% of its total income. The bank operates a retail, commercial, and private bank in the U.K., offering clients lending and payment services as well as asset management services. The three segments combined consume about 65% of the group’s risk-weighted assets. It also provides financing, risk management, and trading solutions around the world to global financial institutions and large corporates in its NatWest markets segment.

Gogarburn, P.O. Box 1000
Edinburgh, EH12 1HQ, United Kingdom
T +44 1316260000
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 59,600