Soon-to-be fully privatised NatWest Group PLC (LSE:NWG) can become one of the top picks in the UK bank sector by mid-2025, according to analysts at US bank JP Morgan.
Post-privatisation, “The Next Act” will be net interest income growth of 6% plus a year through to 2027 with stable deposits adding potentially more upside.
NatWest can also materially de-risk the balance sheet, with its limited Motor Finance exposure and opportunities for market share gains from 3% loan growth a year.
Shareholders will also be rewarded with an ordinary divi payout policy rising to 50% (vs 40% consensus) from 2026, believes JP Morgan, offering a cash yield of 8%/year and a total yield of around 11%/y on average through 2025-27.
Based on all these, JP Morgan sees re-rating potential on the current 'attractive' valuations of 6.4 times 2026 earnings and a 35% discount to the UK market (against 25% historically).
In the near term, the focus is on the next full-year results, with the US bank expecting 2025 guidance to underpin its above-consensus revenue forecasts and for medium-term stated ROTE (return on equity) targets likely to be upgraded to 16% (vs the current more than 13% target).
A price target of 500p gives 30% potential upside and a top pick tag, adds the US bank.