17th Feb 2023 14:35
(Corrects that NatWest's expected income excluding notable items compares 2023 to 2022, not to 2023.)
(Alliance News) - NatWest Group PLC on Friday reported a jump in profit in 2022 and announced a GBP800 million share buy back programme, but still became the worst performer in the FTSE 100 as parts of its 2023 outlook dissatisfied investors.
Gary Greenwood, research analyst at Shore Capital, said NatWest's outlook included some downgrades that could be disappointing to the market.
The Edinburgh-headquartered lender reported an operating pretax profit of GBP5.13 billion, 0.6% higher than company-compiled consensus of GBP5.10 billion and up 34% from GBP3.84 billion posted for 2021.
It was 3.7% higher than GBP4.95 billion expected by Shore Capital analysts. Post-tax profit rose 8.5% to GBP3.60 billion from GBP3.31 billion.
NatWest shares fell 6.3% to 286.30 pence each on Friday afternoon in London. Shore Capital gave the bank a "buy" rating, noting that Thursday's closing price of 306p per share was up 15% in the year-to-date.
As of Friday afternoon, the bank's share price was up 5.6% in the year-to-date.
Richard Hunter, head of markets at interactive investor, called the early market response to the results "slightly perplexing" but noted the stock was up nearly a quarter in the past three months.
He added NatWest was "delivering across the board".
NatWest on Friday reported that total income was GBP13.16 billion in 2022, 1.0% higher than the GBP13.02 billion expected, and beating 2021's GBP10.43 billion by 26%.
Net interest income grew to GBP9.84 billion, higher than the expected GBP9.83 billion, and 31% up from GBP7.54 billion in 2021. Non-interest income rose by 15% to GBP3.31 billion from GBP2.89 billion.
Meanwhile, operating costs in 2022 decreased 0.9% to GBP7.69 billion from GBP7.76 billion.
NatWest's Common Equity Tier 1 ratio was 14.2% at year-end, 170 basis points lower than at January 1, 2022, reflecting distributions and linked pensions accruals of around 310 basis points, it said.
Shore Capital expected a CET1 ratio of 14.9%.
Looking forward, NatWest expects a CET1 ratio of 13% to 14% over the medium term.
NatWest's fourth quarter was notably stronger than a year prior.
Operating pretax profit in the quarter ended December 31 surged to GBP1.43 billion from GBP543 million a year prior. Net interest income grew 49% to GBP2.89 billion from GBP1.92 billion.
Operating expenses decreased 8.2% to GBP2.14 billion from GBP2.33 billion.
The bank declared a final dividend of 10.0p per share for 2022, 33% higher than 7.5p for 2021.
NatWest added: "We intend to commence an ordinary share buyback programme of up to GBP800 million in the first half of 2023, taking total distributions deducted from capital in the year to GBP5.1 billion, or 53 pence per share."
It added that in 2023, it expects "to generate and return significant capital to shareholders through 2023".
Shore Capital Research Analyst Gary Greenwood said that while NatWest's results are in line with consensus expectations, "the market may be disappointed by what appears to be a downgrade to pre-provision profit forecasts, offset by lower impairments."
He said: "Line-by-line guidance for 2023 appears to be weaker than expected on income, guidance of around GBP14.8 billion versus consensus of GBP15.0 billion including net interest margin of around 3.20% versus consensus of 3.38%, and costs, guidance of around GBP7.6 billion versus consensus of GBP7.2 billion, offset by better than-expected guidance on impairments, impairment ratio of 20-30 basis points versus consensus at 37bps."
Greenwood added: "We think the lower-than-expected pre-provision profit outlook may cause some disappointment."
Whilst NatWest noted that the economic outlook is "uncertain", its expected 2023 income excluding notable items of GBP14.8 billion would be 13% higher than GBP13.06 billion in 2022, and the anticipated net interest margin of 3.2% would beat 2022's 2.85%.
For its expected net interest margin for 2023, NatWest presumes a Bank of England base rate of 4.00% for the rest of the year.
Medium term, Shore Capital expects NatWest's pretax profit in 2023 to grow to GBP5.44 billion in 2023, up 9.9% from GBP5.13 billion in 2022, and for this to climb 7.6% to GBP5.85 billion in 2024.
Shore anticipates the bank's earnings per share to rise 34% to 40.7p in 2023 from 30.3p in 2022 and to grow 25% to 50.7p in 2024.
Shore Capital's Gary Greenwood said: "Following this update, we think there may be sizable cuts to consensus pre-provision profit forecasts, with some offset on impairments leading to perhaps a modest trim to consensus earnings estimates overall."
The UK government continues to hold a 46% stake in the bank following a tax-payer bailout during the financial crisis of 2008.
By Tom Budszus, Alliance News reporter
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