NatWest Group PLC (LSE:NWG) shares were up 6% in afternoon trading after the bank's quarterly earnings beat City estimates - even if they were down by over a quarter year-on-year.
The bank's profit before tax (PBT) reached £1,330 million, a 27% decrease year-on-year but 5% above the market consensus.
This was primarily due to better results in net interest income, impairments, and reduced litigation and conduct charges, which helped offset lower non-interest income and increased costs.
The unexpected costs included a new levy from the Bank of England (BoE), which Shore Capital anticipates will be partially offset by additional income throughout the year.
The bank's total net asset value per share (TNAVPS) rose to 302 pence, up 10 pence since the start of the year, which was 9 pence higher than anticipated. The reported return on tangible equity (RoTE), a key profitability measure, was 14.2%, significantly above the forecast by 1.3 percentage points.
Additionally, NatWest's Common Equity Tier 1 (CET1) ratio—an important measure of financial stability—stood at 13.5%, consistent with market expectations and within the target range of 13-14%.
Despite the favourable results and a recent improvement in swap rates that are expected to support better net interest margins, NatWest's management has decided to maintain its guidance for a full-year RoTE of approximately 12%. This conservative stance comes even though current market conditions suggest fewer base rate cuts than previously anticipated by the bank.
Looking ahead, consensus forecasts for FY24 suggest a PBT of £4,845 million and an EPS of 38.1 pence, with a predicted RoTE of 12.5%. These figures slightly exceed the bank's own expectations, indicating a cautious optimism among analysts regarding NatWest's financial trajectory.
NatWest's stock has risen by 32% year-to-date, significantly outperforming the FTSE All-Share Index. As of the latest closing price of 290 pence per share, the bank trades at just under one times its trailing price to tangible net asset value (P/TNAV), with forecasts suggesting a potential fair value of 315 pence per share.
While Shore Capital continues to recommend 'buying' NatWest shares, it notes the limited upside compared to other large UK banks and emphasises ongoing political risks due to the government's ownership, which is expected to end by 2025/26 through a directed share buyback and possible retail placing.
In afternoon trading, the stock was up 16.5p at 306.3p.