Jefferies upgrades NatWest to 'buy'

The broker, which downgraded the lender to ‘hold’ in January, has upped its recommendation to ‘buy’. It also increased the price target to 359p from 246p.

Jefferies said: "The outlook for the level and transmission of rising interest rates has materially improved relative to our January downgrade: we project a base rate 75 basis point higher than where we had previously modelled, structural hedge balances have risen with swap rates providing a material tailwind, and banks have increased new mortgages rates by around 50bps since March."

It concluded: "We once again see asymmetric rewards for NatWest and believe consensus estimates fail to appreciate interest rate gearing in outer years…let alone the share price, which fails to appropriately reflect the 13% return on tangible equity we model for 2024.

"Further, we see £5.4bn of cumulative dividends and buybacks announced through 2024 -23% of current market cap."

Jefferies is forecasting full-year earnings per share for NatWest of 24.5p, 33.7p and 40.8p for 2022, 2023 and 2024, up on earlier forecasts for 15.4p, 22.9p and 29.1p respectively.

As at 1045 BST, shares in NatWest were ahead 3% at 228.9p.

HM Treasury announced on Wednesday that it was extending the trading plan to sell down its 48.5% stake in NatWest by another 12 months, until August 2023. The government has already sold 703.5m shares under the scheme, raising £1.6bn.