This week, the NatWest Group (LSE:NWG) share price set a 52-week high. The bank’s stock is now (13 August) changing hands for nearly 60% more than it was a year ago. This puts it in the top 10 of FTSE 100 performers.
Some of this rally appears to be due to the sector as a whole coming back in favour with investors.
Lloyds Banking Group and Standard Chartered also recorded new one-year highs in August. Barclays did the same in July. Also last month, HSBC briefly became the UK’s most valuable listed company.
But NatWest’s recent good run is also due to an improved financial performance.
During the six months ended 30 June 2025 (H1 25), earnings per share (EPS) was 30.9p — a 28% increase on the same period in 2024. As well as a bigger loan book and higher net interest margin, this was driven by an improvement in its cost/income ratio of 6.7 percentage points.
In H1 25, the bank’s return on tangible equity was 18.1% compared to 16.4% in H1 24.
What do the brokers think?
The consensus of analysts is for a 12-month share price target of 595p. This is approximately 10% higher than today’s value.
Looking further ahead, they are expecting EPS to grow significantly over the next three years from the 53.5p achieved in 2024. The latest forecasts are 57.9p (2025), 65.2p (2026), and 72.5p (2027).
If they are correct, this implies a very attractive forward (2027) price-to-earnings ratio of 7.4.
Based on amounts paid over the past 12 months, the stock is yielding 4%. But it recently announced a 58% increase in its interim payout. Although there are no guarantees, I’m sure income investors will be hoping that the final dividend for 2025 will be raised by a similar amount.
Analysts are forecasting a 36.5p payment in 2027. Based on the bank’s current share price, this would give a yield of 6.8%.
Possible challenges
However, the bank is heavily exposed to the UK, where the economy appears fragile. At 31 December 2024, 90% of its loans were to domestic individuals and companies. With inflation, unemployment, and government borrowing all going in the wrong direction, I think the outlook’s uncertain. Any downturn and NatWest’s earnings could be vulnerable to increased loan defaults and a general drop in new business.
There’s also talk of the government imposing a windfall tax on Britain’s banks to help repair the nation’s finances. They already pay a surcharge but some campaigners have advocated for a much higher tax, similar to the energy profits levy that means the UK’s oil and gas companies face an effective tax rate of 78% on domestic earnings.
Final thoughts
Personally, I don’t think the Chancellor will want to heavily penalise NatWest or the UK’s other banks. A thriving financial services sector is essential for economic growth.
And the bank itself is optimistic. It’s forecasting GDP growth of 1.1% in 2025 and 2026. Okay, this isn’t amazing, but at least it’s going in the right direction. It’s also well capitalised and has a mortgage book with a relatively low loan to value.
In addition, income hunters will be attracted by NatWest’s pledge to pay dividends equal to 50% of attributable profit.
For these reasons, it could be a stock for investors to consider adding to their portfolios.
