The NatWest share price slips in early trading despite positive FY 2024 results. What’s the deal?

NatWest Group (LSE: NWG) launched its last outcomes this morning (14 February) for the 12 months ending 31 December 2024. It reported an attributable revenue of £4.5bn, up 12% since final 12 months, however nonetheless a slowdown in progress. 

By comparability, the financial institution’s third-quarter outcomes confirmed a 26% improve in revenue, supported by sturdy lending progress and buyer deposits. The group’s return on tangible fairness (RoTE) is now as much as 17.5%, greater than steerage forecasts. Despite headwinds from decrease rates of interest, the financial institution’s earnings proceed to rise, now at 53.5p per share.

Talking on the outcomes, recently-appointed CEO Paul Thwaite mentioned: “We’re totally centered on supply as we form the way forward for NatWest Group as an important and trusted companion to our clients and to the UK, and in doing so, create additional worth for our shareholders.”

A last dividend of 15.5p was proposed, ensuing in complete dividends of 21.5p for the 12 months — 26% greater than 2023.

Development and dividends

Up over 110% in the previous 12 months, analysts have been cautious about predicting additional progress for the financial institution. The common 12-month price goal is 480p, lower than a ten% rise from immediately’s price.

The UK authorities has additional decreased its stake in NatWest to six.98% and it ought to change into totally privatised later this 12 months after it sells its remaining stake. That may be the first time it was totally non-public since 2008. As soon as that occurs, it’s anticipated to vary its dividend coverage, growing shareholder returns from 40% to 50%. 

That could be one purpose it’s been tipped as one in every of the most secure dividend shares in the UK. Since restarting dividends in 2019, they’ve grown at a charge of 26% a 12 months, from 2p per share to 21.5p. The yield now stands at 4%, a excessive proportion contemplating the fast price progress.

An funding of £1,000 in 2020 might have quadrupled to £4,000 immediately (with dividends reinvested). Few UK shares have supplied such returns. However can it preserve performing so effectively?

Wanting forward

NatWest is the fourth-largest financial institution in the UK and a key participant in the nation’s banking sector, serving thousands and thousands of shoppers with retail and business banking providers. The previous 12 months noticed notable management modifications following the controversy over the closure of Nigel Farage’s checking account at Coutts. Dame Alison Rose resigned as CEO, marking a big shift in the financial institution’s management.

It has since explored a number of potential methods to drive progress. Examples embody buying a first-rate residential mortgage portfolio from Metro Financial institution and finishing a deal to buy components of Sainsbury’s Financial institution’s operations. Experiences recommend Santander is contemplating promoting its UK retail division to NatWest, hinting at potential enlargement alternatives.

But despite the positive efficiency, dangers stay. The financial institution just lately introduced plans to close 53 branches this 12 months as a part of its digital transformation technique. The transfer might dent the financial institution’s repute as a key high-street institution. A decrease rate of interest surroundings is one other issue to account for, as this might restrict the financial institution’s loan-based revenue.

Total, the financial institution has gone from power to power beneath its new CEO and appears more likely to proceed. Whereas the fast progress of 2024 could taper off considerably, I nonetheless assume it’s a promising inventory to think about in 2025.