On Monday, Berenberg raised the price target for NatWest Group PLC (LON:NWG:LN) (NYSE: NWG) shares to GBP 4.15, up from the previous GBP 3.50, while maintaining a Buy rating on the stock. This adjustment comes in the wake of NatWest's second-quarter results, which were released on July 26, 2024.
The bank reported robust performance but kept its forecast for a return on tangible equity (RoTE) for the full year 2026 above 13%, unchanged despite better starting revenue figures and improved growth and margin outlooks.
The analyst from Berenberg believes that a 14% RoTE is a conservative estimate for NatWest, given the bank's current trajectory. The firm suggests that NatWest's financial returns could be enhanced by stronger growth and capital returns when compared to its main competitors. The analyst's perspective indicates confidence in the bank's ability to achieve superior performance metrics.
According to Berenberg, the bank's tangible book value per share (TBVps) is expected to grow by approximately 12% annually, which supports the rationale for a 25% premium over the current valuation. The current market valuation of NatWest is around 1.1 times its TBVps. The analyst's comments underscore the belief that NatWest's market valuation does not fully reflect its earnings potential and growth prospects.
In other recent news, NatWest Group demonstrated a strong financial performance in the first quarter of 2024. The company's strategic initiatives led to a sixth consecutive year of customer lending growth, reaching £361 billion, and an increase in deposit balances to £420 billion. These developments contributed to an operating profit of £1.3 billion and a return on tangible equity of 14.2%.
RBC Capital, after a detailed analysis of the bank's performance, particularly its securitization efforts, raised the price target for NatWest Group to GBP3.65, up from the previous GBP3.60, while maintaining a Sector Perform rating on the stock. The revised price target reflects a modest adjustment based on the latest quarterly outcomes and the bank's operational focus areas.
Looking ahead, NatWest Group aims for a return on tangible equity of over 13% by 2026 and expects income growth within the £13 billion to £13.5 billion range for 2024.
The company has completed a £500 million on-market buyback program and is in the process of a £300 million buyback. Despite potential headwinds, including the impact of five upcoming rate cuts and the bank levy, NatWest Group remains confident in its ability to achieve its targets and deliver value to shareholders.
InvestingPro Insights
As NatWest Group PLC (NWG:LN) (NYSE: NWG) navigates through its current financial trajectory, insights from InvestingPro suggest a nuanced picture of the bank's stock performance. With a market capitalization of $39.05 billion and a P/E ratio standing at a competitive 7.67, the bank's valuation metrics indicate a potentially undervalued stock, especially when considering its adjusted P/E ratio for the last twelve months as of Q2 2024 at 7.29. This aligns with the Berenberg's assessment that the market valuation does not fully account for NatWest's earnings potential.
InvestingPro Tips highlight that the management's aggressive share buyback strategy could be a sign of internal confidence in the bank's valuation. Moreover, the stock's high return over the last year, with a 64.77% price total return, and trading near its 52-week high, suggests a strong market sentiment. Notably, analysts predict the company will remain profitable this year, a factor that could further buoy investor confidence.
For investors looking to delve deeper into NatWest's financial health and stock performance, additional tips are available on InvestingPro. These include insights on the bank's gross profit margins and return on assets, which could provide a more comprehensive understanding of its operational efficiency. For those interested, remember to use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro, where 13 more tips await to guide your investment decisions.
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