The NatWest Group (LSE:NWG) share price has surged around 70% over 12 months. It has been one of the FTSE 100’s standout performers — a rally driven by robust earnings, a declining government stake, and a supportive banking environment.
As we approach the midpoint of 2025, some investors will be asking: can this momentum continue, and where could the NatWest share price finish the year? Let’s explore.
What the valuation tells us
NatWest’s forward-looking valuation metrics suggest the shares are still attractively priced. The bank currently trades with a forward price-to-earnings (P/E) ratio of about 7.5 times for 2025, falling to 6.6 times for 2026 and 6.3 times for 2027.
These multiples are below the long-term average for UK banks and indicate the market may still be underestimating NatWest’s earnings power, especially given its strong capital position and improving returns.
The price-to-book ratio is projected at 1.12 times in 2025, before moderating slightly thereafter, hitting 0.97 times by 2027. This reflects growing investor confidence in the bank’s ability to generate returns above its cost of equity, although a figure above one doesn’t typically denote an undervaluation. Return on tangible equity (RoTE) is expected to remain above 15% through 2027 — that’s strong.
A new era
A catalyst for the share price movement has been NatWest’s commitment to returning more capital to shareholders. The payout ratio is set to increase to around 50% of earnings from 2025, with dividends forecast to rise from 21.5p in 2024 to 28p in 2025, equating to a forward yield of 6.8%. This is comfortably above the FTSE 100 average. It’s also significant because NatWest didn’t pay a dividend for over a decade after the Global Financial Crisis.
Moreover, the government’s rapid reduction of its stake — now below 5% for the first time since the financial crisis — has also been a major positive. The overhang from state ownership is fading. What’s more, NatWest’s buybacks have further tightened the share count, amplifying earnings per share growth.
NatWest is benefitting from what analysts call a Goldilocks Zone for UK banks. This is when interest rates are high enough to support healthy net interest margins, but not so high as to trigger a spike in loan defaults. A key driver here is the bank’s structural hedge. This is a portfolio of fixed-rate assets that’s being reinvested at higher yields as older, lower-yielding contracts mature. It’s a real boost to net interest income.
Where next?
Despite the positive outlook, risks remain. Global economic uncertainty, particularly around US and UK trade policy, could impact earnings forecasts. A sharp fall in interest rates or a rise in defaults would pressure margins and capital returns.
Additionally, it’s important to note that the stock is trading only 4% below the average share price target issued by analysts. And this broadly reflects my own opinion. After a period of rapid share price growth, the valuation multiples indicate some room for appreciation, but not much.
I can see the stock ending the year near the target — around 550p per share. Despite this, I’m not buying right now. There could be better opportunities elsewhere.
