Goldman Sachs Predicts Strong Growth for NatWest Group Stock

Goldman Sachs Initiates Coverage on NatWest Group

Recently, Goldman Sachs began analyzing NatWest Group PLC (NYSE: NWG) stock and assigned a Buy rating along with a price target of GBP 4.40. This analysis reveals that NatWest's current valuation appears attractive, as it trades at a price-to-earnings (P/E) ratio of 7.3 based on a twelve-month forward perspective and maintains a price-to-tangible book value (P/TBV) of one.

Positive EPS Growth Forecast

The assessment indicates a promising growth trajectory for earnings per share (EPS), with Goldman Sachs projecting a compound annual growth rate (CAGR) of 10% between 2023 and 2027. This growth rate is notably higher than the average 7% forecast for other firms excluded from their UBS coverage. Noteworthy predictions include net profit estimates that exceed consensus by 10% in 2026 and a remarkable 22% in 2027.

Strong Performance and Financial Health

Goldman Sachs emphasizes that these upcoming years will be critical for NatWest, especially regarding their twelve-month price target. The firm also forecasts an average return on tangible equity (ROTE) of 16% from 2024 to 2027 for NatWest. Added to this, expected annual capital returns of 13% from dividends and buybacks further enhance the stock's appeal, exceeding the sector average.

Robust Capital Position

The financial institution aims to uphold a solid capital standing, maintaining a common equity tier 1 (CET1) ratio exceeding 13%. This ratio serves as a crucial indicator of a bank's fiscal robustness, providing essential safeguards for depositors and bolstering global financial system stability. Goldman Sachs' favorable outlook for NatWest stems from these financial metrics and anticipated growth.

Impressive Financial Results

In addition to optimistic forecasts, NatWest Group demonstrated impressive financial outcomes during the year’s first half, posting an operating profit before tax of £3 billion and an attributable profit of £2.1 billion, highlighting a return on tangible equity of 16.4%. Recent strategic moves include acquiring a mortgage portfolio from Metro Bank and collaborating with Sainsbury's, strategies in line with a disciplined growth plan.

Customer Growth and Sustainability Initiatives

NatWest has also celebrated organic customer growth exceeding 200,000, while progress continues towards a target of £100 billion in climate-friendly and sustainable funding by 2025. The company displayed its financial confidence by raising its interim dividend by 9% to 6p.

Looking Ahead

Moving forward, NatWest aims to keep operating expenses steady, excluding bank levies and retail offerings, while targeting full-year revenues around £14 billion, adjusted for notable items. They also anticipate a CET1 ratio between 13% and 14% by the close of 2025, along with risk-weighted assets projected to be around £200 billion.

Interest Rates and Market Dynamics

Moreover, the bank predicts potential base rate cuts in the coming quarters, posing challenges for growth. Despite these concerns, the notable acquisition of a £2.5 billion premium mortgage portfolio from Metro Bank is expected to contribute positively in the second half of the year.

InvestingPro Insights

The recent analysis from Goldman Sachs coincides with several significant metrics sourced from InvestingPro. The current P/E ratio of NatWest Group stands at 7.05, reinforcing the perception of the stock as undervalued. An InvestingPro Tip even indicates that NatWest is trading at a notably low earnings multiple.

Additional Key Metrics

Further details from InvestingPro reveal a price-to-book ratio of 0.74, consistent with Goldman Sachs' assessment that NatWest is trading at close to one times its price-to-tangible book value. The bank’s strong financial standing is reflected in its operating income margin of 40.78% for the previous twelve months as of Q2 2024.

Share Buybacks and Returns

One salient tip from InvestingPro emphasizes that management is actively buying back shares, aligning with Goldman Sachs' predictions of a robust capital return yield from dividends and repurchases. Investors have also been buoyed by a remarkable one-year total price return of 72.16% reported by InvestingPro.

Frequently Asked Questions

What is Goldman Sachs' price target for NatWest Group stock?

Goldman Sachs has set a price target of GBP 4.40 for NatWest Group stock.

What is the expected EPS growth rate for NatWest?

The expected compound annual growth rate (CAGR) for NatWest's EPS is projected to be 10% from 2023 to 2027.

What were NatWest's profits in the first half of 2024?

NatWest reported an operating profit before tax of £3 billion and an attributable profit of £2.1 billion during the first half of 2024.

How does NatWest's CET1 ratio compare to industry standards?

NatWest aims to maintain a CET1 ratio exceeding 13%, which is a strong indicator of its financial health.

What strategic moves has NatWest made recently?

NatWest has acquired a mortgage portfolio from Metro Bank and announced a collaboration with Sainsbury's as part of its growth strategy.

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