European banks offer good value currently on fears of a possible recession according to UBS, with NatWest the standout in the UK’s sector constituents.
Banks trade at 6.5 times 2023 earnings (EPS) or an undemanding 8.5 times if loan losses return to COVID levels, which the Swiss bank sees as ‘light’.
Owning banks going into a recession might seem strange, but UBS believes the stocks offer attractively valued gearing to consensus NII (net interest income) upgrades (almost assured), greater fiscal support (likely), and a reassessment of the value of higher ROEs (returns on equity) when loan losses normalise.
NatWest was sufficiently confident of the outlook to provide 2023 loan loss guidance and it has been moved up to one of UBS’s top picks.
Shares eased 0.4% to 253.9p.