NatWest: We're Raising Our Fair Value Estimate as We See Bank's Franchise Value Strengthening

Key Morningstar Metrics for NatWest Group

• Fair Value Estimate
  : GBX 710
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Medium

We raise our fair value estimate for NatWest Group NWG after incorporating good fourth-quarter results and lifting our midcycle profitability assumptions.

Why it matters: NatWest closed 2025 with a good fourth quarter. Return on tangible equity of 18% was strong, carried by sequential growth in net interest income and low impairment losses. Widening deposit margins stood out positively.

• The structural hedge remains a stronger tailwind than we had anticipated. Current market rates imply increasing yields through 2030, albeit with a diminishing positive impact. This extended visibility drove us to lift our midcycle assumptions for NatWest.
• The Evelyn Partners acquisition introduces execution risk but is the correct move in our view. The acquisition should strengthen Natwest’s noninterest-based income stream, a potentially attractive deployment of capital if revenue and cost synergy targets are hit.

The bottom line: We increase our fair value estimate to GBX 710 per share from GBX 550 per share previously. As a result, NatWest screens as the most attractive UK bank in our coverage.

• We raise our midcycle assumptions for returns on tangible equity to 15% from 14% previously. The change is predominantly driven by a more prolonged net interest income benefit from the structural hedge and improved deposit franchise assumptions.
• We believe that the valuation gap between Lloyds and NatWest on a relative basis is not justified. While Lloyds’ franchise value is adequately reflected in current share prices, we see an opportunity for valuation convergence as NatWest’s franchise continues to strengthen.