Research: Financials
Q423 earnings demonstrated the inherent profitability and resilience of returns at NatWest Group (NWG). PBT came in 25% ahead of consensus, with beats on both revenues and impairments along with good cost control. Despite continuing normalisation of credit and assuming around two more base rate cuts in 2024 than are currently priced into the bond market, management expects to deliver a return on tangible equity (RoTE) of c 12%. On consensus estimates, the shares trade at 0.8x tangible net asset value (TNAV) and P/E of 6.4x in 2024e. Without a re-rating, the consensus 10% TNAV growth and 6.4% yield imply a 16.4% 12-month total return.
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NatWest Group |
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UK banks |
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5 March 2024 |
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Q423 earnings demonstrated the inherent profitability and resilience of returns at NatWest Group (NWG). PBT came in 25% ahead of consensus, with beats on both revenues and impairments along with good cost control. Despite continuing normalisation of credit and assuming around two more base rate cuts in 2024 than are currently priced into the bond market, management expects to deliver a return on tangible equity (RoTE) of c 12%. On consensus estimates, the shares trade at 0.8x tangible net asset value (TNAV) and P/E of 6.4x in 2024e. Without a re-rating, the consensus 10% TNAV growth and 6.4% yield imply a 16.4% 12-month total return.
Resilient returns, conservative assumptions
The Q4 PBT beat was mostly driven by 48% better impairments, but underlying revenues were also 2% above consensus. RoTE was 17.8% with the common equity tier 1 ratio (CET1) finishing the year at a healthy 13.4% (including the £300m buyback announced with the results). Management has guided for a c 12% RoTE in FY24 with conservative interest rate assumptions and expects margins to bottom in H124 and improve in H2 and beyond as the structural hedge reprices. The hedge rolls off at 80bp in FY24 and 50bp in FY25, which should support the 2026 RoTE ambition of >13% on a CET1 ratio of 13.5%, at the mid-point of the target range.
Moderate risk profile
NWG has low unsecured consumer finance exposure, no exposure to the FCA motor finance review and coverage of stage 3 loans is more than double that of Lloyds Bank, its closest peer. The credit cycle is always an uncertainty for banks but these factors lower the potential risk around forecasts, in our view. A successful placing of part of the government’s 37% stake will reduce the stock overhang.
Consensus RoTE estimates in line
Consensus RoTE estimates are roughly in line with company projections in FY24/ 25 of 12.4% and 12.7%, which leaves scope for upside surprise should interest rates follow bond market expectations of three 25bp cuts rather than five in FY24.
Shares appear modestly valued
With expected low double-digit RoTEs over the next three years, a strong dividend, share buybacks and a FY24e TNAV of 321p, NWG shares appear modestly valued. Assuming no re-rating to TNAV, the shares would offer a theoretical 16.4% return (6.4% yield plus 10% TNAV growth) in the next 12 months.
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Consensus estimates
Source: Refinitiv |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Healthcare
Oryzon’s FY23 results announcement covered an eventful period for the company’s pipeline, capped by the release of top-line data from the Phase IIb PORTICO trial for lead CNS asset vafidemstat. With the focus squarely on the planned end of Phase II (EoP2) meeting with the FDA and anticipated clinical updates on the remaining programmes, we see FY24 as a crucial period for the company, with multiple inflection points. Other key upcoming milestones include results from the FRIDA trial (iadademstat in FLT3+ r/r acute myeloid leukaemia; expected in Q224) and a clinical timeline update from the EVOLUTION trial (vafidemstat in schizophrenia; expected in 2024). Based on the current status of the company’s programmes and improved visibility, we have adjusted our market strategy, launch timelines and valuation across the company’s pipeline, leading to a valuation reset to €11.8/share (€15.1/share previously).