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NatWest surges after strong Q2, profits upgrade

Published 2024-07-26, 05:46 a/m
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Investing.com - NatWest (LON:NWG) stock surged Friday after the British lender lifted its profit expectations for this year after a strong second quarter, while buying the mortgage book from rival Metro (TSX:MRU) Bank.

At 05:45 ET (09:45 GMT), NatWest shares traded 6% higher at $3.57, up over 60% so far this year.   

The bank, which is part state-owned, reported operating profits before tax of £1.7 billion in the quarter, surpassing analysts’ expectations of £1.3 billion. It now expects its return on tangible equity, a key measure of bank profitability, to be more than 14%, up from a previous forecast of 12%. 

“We have made good progress against our strategic priorities, taking decisive action to grow and simplify our business,” said CEO Paul Thwaite. “Our customers are beginning to feel more confident, with activity increasing and asset quality remaining strong.”  

NatWest also announced the acquisition of £2.5 billion of prime residential mortgages from Metro Bank, a move that Thwaite said would add further scale to its Retail Banking business. 

The British bank has delivered “a strong print all around in Q2 24,” analysts at Jefferies said, in a note, “with the CET1 ratio standing out, with £3.9bn of RWA [risk-weighted asset] reductions in Q2 driving a 50bps CET1 beat.”

However, Jefferies keeps an ‘underperform’ rating, with a target price of £1.40.

RBC (TSX:RY) Capital Markets also praised the results.

“On an adj PBT basis, there was a 31% beat vs consensus driven by impairments, net interest income and fees. On an adj pre-provision profit basis there was a 13% beat,” RBC analysts said, in a note.

RBC has Natwest at ‘sector perform’, with a £3.60 price target.

“Although NWG screens as attractive on a P/TBV vs ROTE regression analysis adj for excess capital,”RBC said. “Unlike some peers, NWG does not have any exposure to motor finance discretionary commissions. However a potential large sell down of the bank's government stake could come at a material discount.”

 

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