26th Apr 2024 11:28
(Alliance News) - Analysts felt there was "much to appreciate" in NatWest Group PLC's first quarter results as it edges closer towards a return fully out of state ownership.
Matt Britzman, equity analyst, Hargreaves Lansdown said: "NatWest is best of the bunch. Lloyds and Barclays led the way this week and NatWest certainly hasn't disappointed with first-quarter results very nearly a clean sweep [versus] expectations. Impairments came in lower than expected, net interest margin ticked higher from the previous quarter, and both customer loans and deposit levels grew."
On Friday, NatWest reported first-quarter profit that surpassed City forecasts, despite falling sharply from a year before.
The Edinburgh-based lender said operating profit fell 27% to GBP1.33 billion in the first three months of 2024 from GBP1.81 billion a year before, but it highlighted "improving" confidence amongst customers.
This profit decrease reflected a 10% drop in total income to GBP3.48 billion from GBP3.88 billion. Within this, net interest income decreased 8.6% to GBP2.65 billion from GBP2.90 billion.
NatWest said this principally reflected lower deposit balances and mix changes, and lending margin pressure.
Gary Greenwood at Shore Capital noted the operating profit figure beat consensus expectations by around 5% reflecting positive variances on net interest income, impairment and litigation and conduct charges that were partly offset by negative variances on non-interest income and costs.
NatWest said operating expenses edged up to GBP2.05 billion from GBP1.99 billion a year before, but were lower than GBP2.15 billion posted in the previous quarter.
Net interest margin dropped to 2.05% from 2.25% a year before, but ticked up from 1.99% in the previous quarter.
NatWest said NIM across its three businesses was "stable".
"Though macro-uncertainty continues, customer confidence and activity is improving, with both lending and deposits up in the quarter and impairments remaining low, reflecting our well-diversified business," Chief Executive Paul Thwaite commented.
He said the bank had delivered a "strong set of results", adding: "We are also pleased with the recent momentum in the reduction of HM Treasury's stake in the bank.
NatWest is preparing for what is poised to be the country's most high-profile privatisation this year, with the UK government preparing to sell some of its remaining 28.9% stake to retail investors in the coming months.
During his autumn statement, Chancellor Jeremy Hunt said the UK government was "exploring" a possible retail share offer for NatWest over the next 12 months, though this would be subject to market conditions and "value for money".
The UK government first began building its majority stake in the bank in October 2008 during the financial crisis, as it looked to inject funds into the banking system.
Richard Hunter, head of markets interactive investor, felt there had perhaps been an expectation that there would be an update on the potential retail offer for the government's remaining stake in NatWest.
Instead, the bank stated that it was pleased with the recent momentum in reduction of the stake, edging towards the "shared ambition" of returning NatWest to private ownership.
"Even so, there is much for investors to appreciate in a generally strong set of numbers, which has received a warm welcome," Hunter noted.
Shares in NatWest were up 5.5% to 305.75 pence in London on Friday morning.
AJ Bell Investment Director Russ Mould noted the first-quarter beat hasn't been backed up by an increase in full-year guidance but a "conservative approach provides scope for NatWest to deliver a positive surprise down the road."
Bank of America agreed that guidance looked "conservative, particularly on interest rates."
BofA raised its 2024 statutory pretax profit forecast for NatWest by 5% to GBP5.09 billion from GBP4.86 billion. It lifted its 2025 and 2026 forecasts by 6% and 5% respectively.
BofA raised its 2024 earnings per share forecast by 6% to 39.8 pence from 37.7p. It lifted its 2025 and 2026 forecasts by 6% and 5% respectively.
BofA reiterated a 'buy' rating and increased its share price target to 335p from 320p.
Mould pointed out that growth in customer loans and deposits suggests the bank is doing a decent job of defending and enhancing its market share.
"These are ticks in the box for Paul Thwaite whose role as interim boss was only recently made permanent," he said.
By Jeremy Cutler, Alliance News reporter
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