After J Sainsbury PLC (LSE:SBRY) agreed to pay NatWest Group PLC (LSE:NWG) £125 million to take over the core assets and liabilities of Sainsbury's Bank for a £125 million payment, analysts said it was a good first deal for the lender's new chief executive.
NatWest said it expects to add around £2.5 billion of gross customer assets, with roughly one million new customer accounts, making a positive impact on earnings per share and return on tangible equity, with a small hit to its CET1 capital ratio once the transition is completed in the first half of 2025.
Sainsbury's had previously flagged its intention to sell the business.
Analyst Robert Sage at Peel Hunt said NatWest's shopping trip at Sainsbury's "reinforces the greater prominence of growth aspirations within the group strategy" and satisfies the lender's return requirements.
"It anticipates a CET1 impact of -20bps, so the implications for the group's capital return plans are minimal, and we note that as part of the deal terms Sainsbury's Bank is to pay £125 million," said Sage.
"We view this transaction as incrementally positive for the investment case," the analyst adds, reiterating his 'buy' rating on NatWest.
Gary Greenwood at Shore Capital says NatWest "is under-weight from a market share perspective in unsecured personal lending and credit cards" and that management had previously identified this as an area for growth.
"As such, the transaction fits with the group’s strategic objectives, albeit the financial implications are not material enough to warrant a change in our forecasts or investment opinion."
He therefore retains his 'hold' recommendation.
Shore Cap, which is house broker to the grocer, said the deal is "another important stepping stone in the simplification of the Sainsbury business" and the disposal is "at a pace that is faster than we originally anticipated".
Sainsbury's is keeping the insurance, ATMs and travel money commission income businesses, which are profitable and have more of a connection to the retail offer, analysts said.
Plans for Argos Financial Services (AFS) are still undefined, but once the bank deal and the future of AFS are sorted Sainsbury's pledged to return around £250 million to shareholders.
The deal "draws to a close an adventure that had lofty ambitions to be a challenger bank that was thwarted by regulators, technocrats and the power of incumbents", said analyst Clive Black.