Key Morningstar Metrics for NatWest Group
- Fair Value Estimate: GBX 550
- Morningstar Rating: ★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Medium
What We Thought of NatWest Group’s Earnings
NatWest reported a good third quarter with operating profits growing 23%. For 2025, the bank now expects income excluding notable items at around GBP 16.3 billion (above GBP 16 billion before) and a return on tangible equity above 18% versus 16.5% previously.
Why it matters: Income excluding notable items grew 3.9% sequentially on expanding lending and deposit margins as well as improving funding costs. The net interest margin jumped 9 basis points in the quarter.
- Volume growth was solid at 1.1% sequentially, while deposits were down 0.3%. The structural hedge of NatWest’s deposit, which we expect to be a tailwind into 2027, drove most of the improved deposit margin in the quarter.
- Operating expenses benefited from lower litigation and conduct charges. Excluding such charges, costs grew 1%, which is still good considering the 3.9% income growth. Impairments of just 15 basis points were good and below the full-year guidance of 20 basis points.
The bottom line: We raise our fair value estimate to GBX 550 per share after lifting our profitability assumptions both for 2025 as well as our midcycle assumptions.
- We change our moat rating to narrow from none. NatWest has a leading deposit base in the UK, resulting in a funding cost advantage. We believe that NatWest can comfortably outearn its cost of capital after it improves its operating and capital efficiency.
- We believe that NatWest can deliver a 14% return on tangible equity on a midcycle basis as a result of its low-cost funding, improvements in its capital base, and a strong retail and commercial franchise in the UK. Today, NatWest is a much simpler bank than it was a decade ago, and it shows in its profitability and focus.
