The NatWest Group (LSE: NWG) share price has been skyrocketing in 2024, and it’s up 47% in the past five years now.
Interim results on 26 July gave it a further boost to hit a fresh 52-week high. As I write, I’m looking at a 7% hike to 362p.
Profit dip
Profits declined as expected in the first half of the year. And these results come a day after Lloyds Banking Group had posted a 15% drop in profit after tax.
In NatWest’s case, the fall was a softer 7.5%, resulting in a profit of £2.2bn. Return on tangible equity came in at a strong 16.4%.
And key for me, the bank lifted the interim dividend by a very nice 9%, to 6p per share. If we get the same hike in the final dividend, we could be looking at a full-year yield of 5.5%, ahead of the forecast 5%.
CEO Paul Thwaite said: “We are also pleased with the continued reduction of the Government’s stake, which has almost halved this year.” And I think it has to be behind some of the improvement in market sentiment.
Mortgages
In other news, the CEO also told us that “we are acquiring £2.5bn of prime residential mortgages from Metro Bank and, as a result, look forward to welcoming around 10,000 customers to NatWest Group.“
That news was good for the Metro Bank share price too, up 5% in early trading.
With NatWest’s growing interest in the UK mortgage market, all eyes will be on the next Bank of England interest rate meeting. We won’t have long to wait, as it comes on 1 August.
The tipsters put the chance of the first cut since 2020 at 50%, with a quarter point reduction the most likely. I’m not holding my breath, amid fears that inflation is rising again from the 2% target it hit in June.
Valuation
With new-found optimism, NatWest has upped its full-year guidance. From 12% at FY results time, the bank now expects to hit a 14% return on tangible equity.
And it lifted its income target (excluding notable items) from the £13bn-£13.5bn range to £14bn
What does all this mean for the stock valuation?
Well, does this sound like a company that should be on a lowly price-to-earnings (P/E) ratio of just 8.3? It doesn’t to me. But that’s where forecasts had it before this latest update. And what about a multiple of only 6.8 by 2026?
It all makes me think NatWest shares could be screaming ‘cheap’, so what might I be missing?
The risks
Well, there’s the fact that the dividend, while better than expected, is still low compared to what some FTSE 100 stocks are offering. Legal & General is on a forward yield of 8.9%, so maybe the smart investment money should go into insurance stocks?
I also wonder if there’s too much optimism around inflation, which we really can’t say is beaten yet.
And then falling interest rates would mean lower lending margins for banks.
Still, looking at this set of results and at those forecast valuations, I think NatWest Group has to be one to consider.
This post was originally published on Motley Fool
